Urals Discount Narrows as Asian Buyers Consolidate: Caribbean Watches Sanctions Spillover

The discount on Russian Urals crude relative to Brent has narrowed to under US$15 per barrel, the tightest level since the G7 introduced a US$60 per barrel price cap in late 2022. The narrowing reflects the consolidation of Russian oil exports into a handful of large Asian buyers, principally Indian refiners Reliance, Nayara Energy (in which Rosneft holds a stake) and Indian Oil Corporation, alongside Chinese state and independent refiners.

The Office of Foreign Assets Control (OFAC) of the US Treasury has tightened sanctions enforcement against the so-called shadow fleet of tankers that move sanctioned Russian crude, with over 180 vessels now designated as Specially Designated Nationals (SDNs). Several mid-sized trading houses based in Dubai, Hong Kong and Singapore have also been hit with secondary sanctions, prompting a flight to compliance among mainstream commodity traders.

For Trinidad and Tobago, the sanctions environment has indirect but meaningful implications. Heritage Petroleum, the National Gas Company and Atlantic LNG all rely on access to international banking, shipping and insurance markets that are highly sensitive to OFAC compliance. Trinidad-based traders and shipping agents have been required to enhance know-your-customer (KYC) procedures, particularly in light of the country's proximity to Venezuela and the lingering ambiguity around the Chevron Specific Licence and the Dragon gas agreement.

The narrowing of the Urals discount also shapes the broader crude market in ways that affect T&T's fiscal outlook. As Russia captures more value from each barrel sold, OPEC+ cohesion is supported, helping to keep Brent prices in the US$78-85 per barrel range. This is supportive for Heritage Petroleum's revenue line and for the Ministry of Finance's Supplemental Petroleum Tax receipts, which contribute meaningfully to the national budget.

On the gas side, the consolidation of Russian flows toward Asia has limited the supply of competing pipeline gas to Europe, supporting LNG prices and benefiting Atlantic LNG netbacks. With European TTF prices expected to average EUR 32 per megawatt-hour in 2026 and Asian JKM prices at US$12.50 per MMBtu, Trinidad cargoes loaded at Point Fortin are clearing both basins at attractive margins, depending on freight differentials.

The geopolitical dimension is particularly relevant for the Caribbean, where Venezuela's PDVSA has historically operated under the shadow of US sanctions. The Biden-era easing of restrictions allowed Chevron, Repsol and ENI to lift Venezuelan crude, and Shell secured a licence to develop the Dragon gas field for export to Trinidad. However, the political landscape under the Trump administration has reintroduced uncertainty, with periodic licence revocations and threats of secondary sanctions on counterparties dealing with PDVSA.

For T&T, the strategic response has been to deepen dialogue with the US State Department and Treasury, while maintaining commercial engagement with Caracas. Energy Minister Stuart Young has repeatedly emphasised that the Dragon and Manatee gas projects are essential to T&T's energy security and have been pursued in full compliance with US guidance. The narrowing Urals discount and tighter sanctions enforcement serve as a reminder that compliance vigilance is non-negotiable.