Russia continues to reap huge profits from its oil, even as the West seeks new sanctions against the country.
Despite tough EU measures to cut Russian oil imports, Moscow still has plenty of buyers — and at prices high enough to keep government revenues high and money flowing into its coffers.
Before the war with Ukraine, Russia sold about half of its 7.85 million barrels per day of crude and refined oil to Europe, but with the war and the European Union vowing to end its dependence abruptly on Russian oil and gas, the Kremlin took advantage of high global prices while looking for new customers and reorienting its strategy. export to Asia.
The windfall shows how difficult it is to punish a major oil and gas power like Russia when so much of the world – especially developing countries – is dependent on conventional fuels.
Even with the “sharp oil production cuts” expected this year, Russian tax revenue “will rise significantly to more than $180 billion due to the sharp rise in oil prices,” according to estimates by energy research firm Rystad Energy, which is 45 percent higher than previously thought. It is in 2021.
Overall, the oil tanker movement pattern indicates that Russia’s crude oil exports have fallen by at most 20%, a modest percentage given the sanctions efforts.
While a study conducted by Spire Global, indicates that crude oil tankers leaving Russian ports decreased from an average of 17 per day to 13 per day after the announcement of US sanctions on March 8, according to the Washington Post newspaper and seen by Al-Arabiya.net.
Russian threats are redrawing the global energy map
Russia has sold oil to India and China, which have large, fast-growing economies and have ignored international sanctions related to the war, as India’s purchases of Russian oil, which previously represented less than 3% of India’s consumption, have risen to a much higher proportion, while China was already Russia is the biggest Asian customer and needs oil to fuel its booming auto and petrochemical industries.
But Asian markets have their limits for Russia, as it has limited pipeline capacity in the region, and its oil tankers have to make long journeys to deliver their cargoes, and over time, this may lead to financial losses for Russia.
For her part, senior analyst at Rystad Energy, Daria Melnik, predicts that Russia’s production by 2030 will be 2 million barrels per day lower than it was before the war – the result of the lasting damage from shutting down production in irretrievable wells.
“At this early stage of sanctions and embargoes, Russia will benefit because higher prices mean tax revenue is much higher than in recent years,” Melnik said in a report last week. “It will take time to divert exports to Asia and it will take huge infrastructure investments that in the medium term will see a sharp decline in Russia’s production and revenue.”
European Commission President Ursula von der Leyen
Timetables for the complete ban
The nature of oil markets and the slow change in consumption habits mean that relatively small shortages can lead to large price increases. So, while European Commission President Ursula von der Leyen promised to “phase out Russian oil in an orderly manner” and in a way that “minimizes the impact on global markets,” oil analysts said the massive change would be disorderly, as many of the largest oil trading companies explain In the world the word “EU sanctions”, as a warning to end non-urgent purchases.
“This would be a complete ban on the import of Russian oil, transported by sea or through pipelines for crude and refined products,” von der Leyen said. It set two timetables – the phasing out of Russian supplies of crude oil in 6 months and refined products by the end of the year.
In turn, Kevin Bock, managing director and head of research at ClearView Energy Partners, said von der Leyen was “making two big bets” – first, that a slow phased out could protect Europe from price spikes, and second, a flexible program for reluctant European states. to end its dependence on Russian energy products.
“Neither proposal looks like a fatal blow,” Bock said. “If the EU sanctions are effective and are imposed, oil prices will rise for everyone.”
Meanwhile, diesel prices in Europe have already risen, hurting motorists, shipping companies and truck drivers.
Kayrros, a satellite data analytics company, said the amount of crude in European storage facilities was still “well below” the normal range at this time of year.
A report by the Eurasia Group said: “The gradual elimination of the use of Russian oil by the European Union, is likely to lead to persistent and extremely difficult turmoil in the global market as European refineries stockpile fuel and raise the prices of other imports to prepare for the embargo on Russian fuel. In doing so, they will tighten the global market for these products. This could get worse if the Group of Seven countries impose insurance restrictions on oil tankers, many of which fly other countries’ flags, Bock added.
Without insurance, most tanker operators will refrain from sending their ships to Russia. Many tanker operators or their clients – such as billionaire Mukesh Ambani’s India’s Reliance Industries – do other types of business that could be subject to US or EU sanctions.
Regarding the possibility of G7 sanctions against insurance companies, French insurance giant AXA said last week that it “fully respects all applicable international sanctions and has stopped underwriting new insurance business in relation to assets owned by Russia or located in Russia.” Asked about the possibility of broader sanctions, the company said it was too early to comment.
India, Russia
“The relationship between Russia and India is much stronger than oil.”
And while the West considers how to tighten sanctions, Russia has made progress toward its goals. India, abstaining from a vote to condemn Russia at the United Nations, is one of the few places willing to buy Russian oil, and it has been able to get Russian oil at steep discounts of more than $30 a barrel.
In April, India’s purchases rose, as it bought 627,000 barrels per day of the Russian Urals benchmark, compared to 274,000 barrels per day in March.
The daily figure for April came in at a level of 20 times the daily average of Indian imports from Russia in 2021, according to S&P Global.
India’s total oil consumption last year was 4.76 million barrels per day.
“The relationship between Russia and India is thicker than oil,” RBC Capital Markets wrote in a research note to clients this month. The investment firm noted that Russia is “one of India’s largest arms suppliers with more than two-thirds of the Indian army being equipped with Russian equipment”. Late last year, the two countries renewed a 10-year defense cooperation agreement.
The logistical challenges are the biggest threat to Russia’s dependence on India in marketing its production, as it takes about two weeks for the oil tanker to move from Murmansk to Europe, compared to a month to go to India. Additionally, it must contend with competition from Iraq, Asia’s growing oil exporter.
Corona closures in China
Chinese Dragon
On the other hand, Russia views China as a growing market for its oil, but the new waves of the Corona virus have prompted China to lock up citizens in Shanghai and Beijing, resulting in a sharp decline in economic activity and reducing the need for oil imports.
Analysts estimated that Chinese consumption fell by 1 million to 1.5 million barrels per day.
But instead of allowing oil to seep into global markets, China is building onshore storage tanks for future emergencies. This largely offset the release of oil from the US Strategic Petroleum Reserve and boosted prices in the US and Europe.
The Russian economy remains surprisingly resilient in the face of international sanctions, and Russian air travel is on the rise.
The number of loaded crude oil tankers leaving Russian ports is also on the rise, which indicates the continuation of Russian crude exports and is likely to ease pressure on the Russian oil industry, and this is confirmed by inventory changes at Russian export terminals which also show the strength of export operations.
In addition to China and India, discounted Russian barrels go to Turkey, Georgia and some African countries.
Even after accounting for discounts on crude, Russia is still selling crude at about $70 a barrel — above official prices that have been imposed for most of the past eight years, according to the US Energy Information Administration.
Separately, Ukraine’s national gas company, Naftogaz, said on Wednesday that it could not guarantee shipments of Russian gas across the Ukrainian border to Europe, due to “unauthorized purchases” of gas in the occupied territories.
“Ukraine no longer bears responsibility for transporting Russian gas through Ukrainian territory under Russian military occupation,” Naftogaz said in a statement. The company’s CEO, Yuri Vitrenko, said that Russian gas giant Gazprom was still responsible for payments under the contract.
If the gas is not redirected to safer areas, the decision could affect a third of Russian gas exports through Ukraine, or just under 3% of natural gas demand in the European Union and Britain, according to data from the International Energy Agency.
Oil tanker – emoji
European Union Road
Meanwhile, Europe has made surprising progress toward ending its dependence on Russian oil. From May 2021 to February 2022, an average of 5 tankers per month arrived at German ports carrying Russian crude oil, according to Spire Global. That number dropped to 3 tankers in March, and in April, it was zero.
The pipelines can still provide other oil supplies, but Germany has replaced all of its Russian imports except for the 12% that comes via the pipeline to the BCK Schwidt refinery, about 60 miles northeast of Berlin.
The refinery is owned by the Russian government-controlled oil giant Rosneft, and the company is unwilling to switch to another supplier.
The German government is working to change the law to allow it to confiscate the facility. Then it could replace Russian crude with other imports delivered via the Gdansk or Rostock pipelines.