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Global Category Intelligence
Q2 2025
Global Category Intelligence
Q2 2025
ALERT – Impact of Sanctions on Russian Crude Oil Flows to China
19 February 2025
Recent US and UK sanctions targeting Russia's energy sector have introduced significant global supply chain challenges, particularly affecting Russian crude oil flow to China. On January 10, 2025, the US Department of the Treasury imposed sweeping sanctions against Russia's energy sector, including the designation of more than 180 vessels as blocked property. The UK joined these efforts, imposing sanctions on major Russian oil producers Gazprom Neft and Surgutneftegas.
These sanctions are designed to fulfill the G7 commitment to reduce Russian revenues from energy and substantially increase the risks associated with the Russian oil trade. The measures focus on tankers responsible for transporting approximately 42% of Russia's seaborne oil exports, with the majority destined for China.
Impact on Procurement and Supply Chains
The sanctions have created logistical complexities and increased costs, affecting the steady flow of Russian oil to China's independent refineries. This is significantly influencing sourcing strategies, pricing, and logistics planning. Market dynamics have shifted, with fluctuations in crude premiums and freight rates altering cost structures and supply reliability. January saw stable deliveries of Russian crude to China, but signs of volume reductions are expected in February due to logistical hurdles and higher freight costs.
Companies are responding with adaptation strategies, including using shadow fleets and alternative ports, though these introduce operational inefficiencies and risks. Organizations may need to diversify supply routes, renegotiate contracts, or invest in logistics capabilities to mitigate volatility.
Indirect Procurement Impacts
Beyond immediate logistics and sourcing challenges, sanctions are driving demand for various indirect procurement services and solutions:
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Legal and Compliance Services: Increased demand for legal expertise to navigate complex international sanctions and ensure regulatory adherence.
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Risk Management and Consulting: Greater reliance on geopolitical risk assessment consultants to manage exposure to shipping disruptions.
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Information Services: Real-time market intelligence on sanctions, freight rates, and commodity pricing is needed to support strategic decision-making.
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Logistics and Transportation Solutions: Procurement of alternative shipping methods or adjusted routes to circumvent restricted vessels.
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IT and Digital Solutions: Expanded investment in supply chain management tools that enhance visibility, shipment tracking, and scenario planning capabilities.
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Insurance Adjustments: Specialized coverage is needed to account for new sanctions and risks associated with alternative shipping solutions.
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Training and Development: Procurement compliance training services to ensure staff understands evolving trade regulations and logistics adjustments.
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Sustainability and CSR Consulting: Growing interest in consulting services to align procurement practices with ethical and sustainability considerations in light of sanctions.
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Contract Negotiation and Management: A rise in demand for procurement services that facilitate flexible contracting in response to market volatility.
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Marketing and PR Services: Investment in strategic communication efforts to manage reputational risks associated with shifting supply chain strategies.
Key Takeaways
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Diversify Sourcing: Develop relationships with alternative suppliers and consider geopolitical risks in long-term procurement strategies.
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Enhance Risk Management: Regularly update risk frameworks and invest in technology for real-time monitoring of supply chain disruptions.
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Flexible Logistics Planning: Prepare for shifts in transportation methods and negotiate flexible contract terms to accommodate price and delivery fluctuations.
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Cost Management: Track market trends to negotiate better terms and identify cost-saving opportunities in procurement and logistics.
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Stay Informed: Monitor international sanctions, trade policies, and geopolitical developments through industry networks and real-time data sources.
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Ensure Compliance: Collaborate closely with legal teams to navigate evolving regulations and prevent inadvertent violations.
This evolving situation underscores the need for agility, strategic foresight, and robust risk management in procurement and supply chain operations. As geopolitical tensions continue to shape global trade flows, procurement professionals must remain adaptable to mitigate risks and ensure compliance with international regulations.
Please visit the Indirect Impact Blog for updates, key news alerts, and point-of-view statements for Indirect Procurement professionals.
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