Russia is gradually running out of options to sell oil

Oil is Russia’s main source of foreign exchange, but Moscow is now faced with the question of finding new customers as Europe moves away.

The European Union (EU) is actively promoting efforts to block the flow of Russian oil and oil products to most of its member states this year as the Ukraine conflict shows no signs of ending. If the bloc comes to an agreement on an oil ban, it will deal a severe blow to Russia’s economy, which derives much of its energy from energy.

The United States, Canada, Britain and Australia have banned imports of Russian oil, while Japan said it would accept the oil ban “in principle” after the weekend’s G7 meeting. If the EU, along with the G7, can agree on an oil ban, half of the world economy will sever ties with Russian oil.

According to Julia Horowitz, an analyst at , such an oil ban will not shut down Moscow overnight CNN. Countries like India continue to increase their purchases of hundreds of thousands of barrels a day of crude oil from Russia, benefiting from sharply reduced prices. The Kremlin’s energy revenues have also risen as global oil prices hit record highs due to the Ukraine crisis.

But over time, Russia will gradually feel the consequences of losing the European market, which receives more than 50% of its oil exports, which will lead to a drop in state revenues, while other tough sanctions will do more and more damage. Moscow will struggle to find new customers to fill the void left by the EU. The International Energy Agency (IEA) and analysts predict a sharp drop in Russian oil production.

“It certainly hurts Russia,” said Henning Gloystein, director of energy programs at consulting firm Eurasia Group.

An oil well near the city of Nefteyugansk in northern Russia in 2004. Photo: Reuters.

An oil well near the city of Nefteyugansk, Northern Russia in 2004. Photo: Reuters.

Moscow is heavily dependent on oil and gas sector revenues, which account for an estimated 45% of the federal budget in January, of which Europe has long been the largest consumer. According to the IEA, a third of the region’s oil imports came from Russia last year. Before the outbreak of the military conflict in Ukraine, Europe was importing around 3.4 million barrels of oil from Russia every day.

This number has decreased slightly. From the end of February, most oil traders in Europe began to hesitate amid rising transportation costs and difficulties in financing and insuring ship shipments of Russian oil. According to Rystad Energy, Europe imported about 3 million barrels of oil a day from Russia in April.

But after more than two months of conflict in Ukraine, the EU wants to go further and push for a six-month ban on oil imports from Russia and an end to imports of refined oil products by the end of the year.

The EU plan will put pressure on the Russian economy and possibly even trigger a severe recession. The International Monetary Fund forecasts that the Russian economy will shrink by 8.5% this year.

Analysts at research firms Rystad Energy and Kpler predict that Russia will have to cut about 2 million barrels a day, or 20% of its production, because of the EU embargo.

Some argue that an oil ban from a giant importer like Europe will keep crude oil prices higher, allowing Moscow to make more money from oil, at least in the short term. But observers say that depends on Russia’s ability to divert oil shipments to other customers.

“It’s not easy,” said analyst Julia Horowitz.

A significant part of Russia’s oil exports to Europe is transported through surface oil pipelines. Diverting that oil to Asian markets would require new infrastructure that is expensive and takes years to build.

Oil shipped by sea can find alternative buyers more easily. India, which consumes around 5 million barrels of oil a day, has sharply increased its imports from Russia after the outbreak of the Ukraine conflict.

Data from Rystad Energy shows that India’s crude oil imports from Russia rose to nearly 360,000 barrels a day in April, a five-fold increase from January, as the price of Russia’s Ural crude is based on standard Brent crude. It was trading at a very small discount before the conflict, but has now climbed to $35 a barrel, a reduction attractive to buyers unaffected by Western sanctions.

“At a time when others are restricting or avoiding Russian crude, they appear to be the biggest beneficiaries of cheap oil,” said Matt Smith, senior oil analyst at Kpler, of India.

However, India is unwilling to be a big customer to help Russia absorb all the oil turned away by Europe. In a statement last week, India’s Ministry of Petroleum and Gas said the country imports oil from around the world, including a large amount from the US.

“The amount of oil imported from Russia is still very small compared to India’s consumption,” the agency said.

China, Russia’s largest oil buyer, has also increased its purchases. Data from Rystad, Kpler and OilX show that China’s oil imports have increased since the conflict erupted in Ukraine, but not significantly.

OilX, which uses industrial and satellite data to track oil production and flows, found that China’s imports from Russia by pipeline and by sea rose just 175,000 barrels a day in April, about 11% more than the average of 2021 imports will grow faster in May, according to preliminary data.

However, China’s energy needs have fallen as the country imposes restrictions to prevent Covid-19 in major cities, tech and financial hubs. As a result, the flow of energy from Moscow to Beijing comes to a standstill.

“China cannot take all the oil from Russia,” said Gloystein, an expert at the Eurasia Group.

than tam (Corresponding CNN)