Analysis | Russian sanctions shift oil price-making power to Asia from Europe Premium

Major consumers in Asia — primarily India and China — are the major winners of the sanctions on Russia

Western sanctions on Russian and Iranian oil have channelled cheap fuel to Asia and in the process eroded a decades-long trend whereby the continent has paid more for energy than Europe, according to traders, analysts and Refinitiv Eikon data.

Analysts and government officials from consumer countries use the term Asian premium to refer to the higher prices Asian importers have paid for oil sold by big exporters, such as members of the Organization of the Petroleum Exporting Countries.

For Asia, a weakened premium amounts to an economic stimulus, highlighting another unintended consequence of the Western sanctions on oil and gas exporter Moscow, which also led to a surge in the amount Europeans have paid for natural gas.

"It's safe to say that some major consumers in Asia, most notably India and China, are the major winners of the sanctions," Ole Hansen, head of commodity strategy at Saxo Bank, said.

Western Sanctions have led Russia to sell more than twice as much crude to Asia in the year to January, according to Kpler data. Iran, under U.S. sanctions, has boosted exports to the highest in three years on some estimates, with China the biggest buyer.

Russia's flagship export blend Urals, which before the Ukraine invasion was sold in Europe at a few dollars a barrel below the value of benchmark dated Brent, is being sold in Asia at a discount of minus $24, according to Refinitiv Eikon data. Some industry sources, asking not to be named, say the discount is narrower at $10-$15 per barrel.

Even at a discount of around $15 per barrel, a refinery in India processing 200,000 barrels per day would save $3 million a day on its crude purchases compared to a European rival. On an annual basis the saving would exceed $1 billion.