The EU partial embargo covers Russian oil introduced into the bloc by sea, with an exemption for imports delivered by pipeline following Hungary’s opposition.
Attila Kisbenedek | Afp | Getty Images
Moscow could respond to European sanctions on Russian oil by looking for other buyers for its crude oil or reducing production to keep prices high. Its actions would have a global economic impact, unless OPEC intervenes.
EU leaders agreed on Monday to ban 90% of Russian crude oil by the end of the year as part of the bloc’s sixth package of sanctions against Russia since it invaded Ukraine.
“The Russian response will obviously be closely monitored,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
According to the International Energy Agency, Russia is the world’s third largest oil producer after the United States and Saudi Arabia, and the second largest exporter of crude oil after Saudi Arabia.
“What is happening now will change the oil and gas trade in the future. Oil prices will not go down any time soon and the consequences of Russian sanctions will be felt for several years,” said Hossein Askari, a professor at George Washington. University School of Business. “The US should have used strong preventive sanctions on Russia and be tougher with OPEC oil producers to increase oil production.”
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Looking for other buyers
If Russia manages to unload its sanctioned crude oil and how much it can sell, it will affect oil prices worldwide. About 36% of EU oil imports come from Russia.
Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, said the country would look for other buyers for its oil.
“As he rightly said yesterday, #Russia will find other importers,” Ulyanov said via Twitter, referring to European Commission President Ursula von der Leyen.
“Whether these barrels will find a home in India, China and Turkey could depend on whether the EU finally chooses to target shipping and insurance services and whether the United States decides to impose secondary sanctions in the style of Iran.” , wrote Croft of RBC.
Moscow already has two likely buyers for its crude oil: China and India. Countries have been buying Russian oil at a discount, and industry observers say it looks set to continue.
While India traditionally imports very little crude from Russia, only between 2% and 5% per year, according to market observers, its purchases have skyrocketed in recent months.
India bought 11 million barrels in March, up from 27 million in April and 21 million in May, according to commodity data firm Kpler. This is in stark contrast to the 12 million barrels it bought in Russia throughout 2021.
China was already the largest individual buyer of Russian oil, but its oil purchases have also increased. From March to May, it bought 14.5 million barrels, a threefold increase over the same period last year, according to Kpler data.
Production clippings
Russia could also reduce crude oil production and exports to cushion the blow to its finances. On Sunday, Vice President of Russian oil company Lukoil Leonid Fedun said the country should reduce oil production by up to 30% to raise prices and avoid selling barrels at a discount.
“Washington officials have expressed concern that Moscow may change the orderly situation at the end of the year by reducing exports over the summer to inflict the greatest economic pain on Europe and test the collective determination of its member states. defend Ukraine, “Croft said. on Tuesday.
Given the “alarmingly low” inventory and lack of refining capacity, a Russian preventive cut could have a very damaging economic impact this summer, he added.
“For Russia, we believe that the impact of lower export volumes this year will be offset mainly by higher prices,” Capital Economics economist Edward Gardner wrote in a note on Tuesday. He predicted that Russia’s oil production and exports could fall by 20% by the end of the year.
Although crude oil from the Urals, Russia’s main oil export, is trading at a discount to world benchmarks, it is currently priced at $ 95 a barrel, still well above what it was a year ago. Gardner.
But if Russian production goes down, other players can step in to help tame prices. The Financial Times reported on Thursday, citing sources, that Saudi Arabia is poised to increase crude oil production if Russian production falls significantly following European Union sanctions.
The OPEC + alliance, of which Russia is a part, is scheduled to meet monthly later on Thursday.
“Misleading” shipping practices.
Since the start of the war between Russia and Ukraine, there have been 180 changes of ownership of ships from Russian to non-Russian entities, according to the maritime artificial intelligence firm Windward, which cited its own data. of property.
Windwards said the changes in just three months were more than half of the changes in ownership of Russian ships by 2021.
Many of the Russian ships were sold to companies based primarily in Singapore, Turkey, the United Arab Emirates and Norway, according to Windward.