With Russia’s war machine in Ukraine showing no signs of slowing, the United States has been ratchetting up sanctions aimed at crippling Russia’s war effort. On January 10th, another series of sanctions targeted specific coal companies such as SKIF and KRU Overseas Limited, alongside Russia’s coal terminal, Port Lavna. The European Union has also been actively introducing sanctions against Russia, further isolating its energy sector. However, these coal-specific sanctions may be less impactful than its predecessors, due to the fact that the global coal market has already adjusted to such disruptions.
Russian coal exports to Europe fell sharply by approximately 91% from 2021 to 2023 before plateauing in 2024. In contrast, India saw a 240% increase in coal imports from Russia during the same period, before also leveling off in 2024. Similarly, China increased its imports of Russian coal by about 65% from 2021 to 2023. As both China and India remained neutral during the imposition of sanctions, they were able to take advantage of the surplus Russian coal rejected by Europe, initially at a discount.
However, this shift in trade flows seems to have already run its course. Sanctions introduced in June 2024 against Russian coal entities Elga, Coalstar, and Mairykhsky, open-mine pit appear to have had a limited impact, as Russian coal shipments to both Europe and India plateaued in 2024, rather than declined. It is likely that the global coal market has already found a new equilibrium, with Europe turning to the likes of Colombia, Indonesia, and Kazakhstan to replace Russian coal.
In addition to shifted trade flows, coal substitution via alternative energy could also result in a more modest impact of the January 10th sanctions. According to a study by Ember Energy, Europe’s coal power generation fell by a record 26%, while renewable rose by 44% in 2023. Additionally, Rystad noted that coal’s share of European power generation fell by 21% from 2021 to 2023, while renewables’ share rose by approximately 11%. The sanctions have likely acted as a catalyst for Europe to adopt cleaner energy, in line with other initiatives such as FuelEU Maritime, to meet the 2050 carbon-neutral target.
The muted price movement following the January 10th sanctions further underscores the diminishing impact of sanctions on the coal market. While Newcastle coal futures spiked sharply to around $400 USD/T in 2022 following the initial sanctions, prices gradually retraced as the market readjusted. Even after the introduction of new sanctions in June 2024, prices saw only a marginal increase and remained largely rangebound.
While the sanctions may have a reduced overall impact, some effects can still be observed in China’s coal trade. Following the imposition of the June 2024 sanctions, imports from Russia dipped 20% year-on-year in 2024. The added risk of secondary sanctions faced by their counterparties has forced Russian coal companies to sell at a discount. However, as sanctions disrupt Russian supply chains, railway capacity issues and higher railway tariffs have resulted in added costs for Russia’s coal industry. Russian coal has thus become less price-competitive compared to supplies from the likes of Australia, Indonesia, and Mongolia, with Russia’s coal industry potentially facing a wave of bankruptcies this year.
Overall, the January 10th coal sanctions are unlikely to have immediate implications for the freight market, as the global coal market has largely adapted to the effects of sanctions on Russia. However, with Russia’s coal industry burdened by rising costs and limited ability to increase prices for counterparties, Russian coal shipments could continue to decline.
