Despite healthy global oil demand, J.P. Morgan maintains a bearish outlook because supply is forecast to expand at three times the rate of demand. This oversupply creates such a large market imbalance that prices must fall to enforce production cuts and rebalance the market.

Russia has dramatically shifted its oil trade away from the U.S. dollar, with only 5% of exports now settled in USD, down from 55% in 2022. While this circumvents direct financial sanctions, Russia remains vulnerable as key logistics like freight and insurance are still dollar-linked, increasing costs and complexity.

Modern multinationals avoid the high cost and risk of securing foreign markets themselves. Instead, they 'draft' behind the U.S. government, which uses its diplomatic and military power to create favorable conditions. This effectively socializes geopolitical risk for corporations while they privatize the profits.

Recognizing Russia's high tolerance for military casualties, Ukraine has shifted its strategy to asymmetric economic warfare. By systematically using long-range drones to attack Russian oil refineries and tankers, Ukraine aims to inflict financial pain where the human cost of war has failed to be a deterrent, creating what they call "the real sanctions."

Indian refiners are likely to reduce direct purchases from sanctioned Russian entities like Rosneft. This is driven less by the sanctions themselves and more by the desire to protect their reputation and maintain access to the global financial system. The precedent set with Iran, where official imports dropped to zero, suggests a similar pattern.

The primary impact of U.S. sanctions on Russian oil is not a reduction in supply but a compression of profit margins. Russia is forced to offer deeper discounts, estimated at $3-$5 per barrel below pre-sanction levels, to compensate buyers for increased logistical and financial risks, ensuring export flows remain stable.

Each time the U.S. uses financial sanctions, it demonstrates the risks of relying on the dollar system. This incentivizes adversaries like Russia and China to accelerate the development of parallel financial infrastructure, weakening the dollar's long-term network effect and dominance.

In Russia, nominally private companies like Gazprom function as direct extensions of the state. Their international investments are designed not just for profit but to achieve geopolitical goals, creating a system where foreign policy, business interests, and the personal wealth of the ruling class are completely inseparable.

Massive expansion of Russian pipeline capacity, including the Power of Siberia 2, will increase gas flows to China from 38 BCM in 2025 to 106 BCM by 2035. This dramatic increase in secure overland supply is the primary reason why China's demand for seaborne LNG is forecast to peak and then plateau around 2032.