How will Russia ‘dodge’ EU oil sanctions?

Russia could respond to sanctions targeting its oil sector by finding new customers or cutting output to keep prices high. This move could have a negative impact on the global economy if OPEC does not intervene.

Russia’s response will be closely watched. said Helima Croft, head of global commodity strategy at RBC Capital Markets.

How will Russia 'dodge' EU oil sanctions?  - first

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According to the International Atomic Energy Agency (IEA), Russia is the world’s third largest oil producer after the United States and Saudi Arabia; is the world’s second largest crude oil exporter after Saudi Arabia.

“Russia’s response to oil sanctions is likely to change oil-gas trade in the future. Oil prices will not fall in the immediate term and the consequences of sanctions against Russia will linger for many years. The US should have imposed ‘pre-emptive’ sanctions on Russia and got tougher on OPEC oil producers to increase production sooner.” Hosseiun Askari, a professor at the George Washington University School of Business.

Looking for new customers

Whether Russia can ease the impact of sanctions on its crude oil and how much it can sell will impact global oil prices.

In a statement on Twitter, Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, said that Russia will look for other partners to buy its oil. Currently, Moscow has two potential buyers of crude oil, China and India. Beijing and New Delhi have both bought discount Russian oil and experts predict this will continue into the future.

According to market watchers, in the past, India imported very little crude oil from Russia, only 2-5% per year, however, in recent months, its purchases have skyrocketed. Specifically, India bought 11 million barrels of Russian oil in March, this number increased to 27 million in April and 21 million in May. Meanwhile, for the whole of 2021, India only bought 12 million barrels of oil. from Russia.

China is already Russia’s largest oil customer, but its buying volume has also skyrocketed. From March to May, China bought 14.5 million barrels, tripling the same period in 2021, according to Kpler data.

Even so, Ms. Croft said, there is still a risk for Moscow as the EU targets shipping and insurance services.

Change mode of transport

“Whether Russian barrels make it to India, China and Turkey may depend on whether the EU ultimately chooses to target shipping and insurance services and whether Will the US choose to impose secondary sanctions on Iran-style?” RBC’s Croft writes.

According to the maritime consulting firm Windward, since the Russian-Ukrainian conflict broke out at the end of February, there have been 180 cases of change of owners of shipping vessels from Russian entities to non-Russian entities. of Russia.

The cases of change of ownership of Russian ships recorded in the last 3 months alone are more than half of the similar cases in the whole of 2021. A lot of Russian ships have been sold to companies based in Singapore, Turkey. United States, United Arab Emirates (UAE) and Norway.

Cut production

Russia may also cut production and reduce crude exports to cushion the financial impact. Vice President of Russia’s Lukoil Oil Company, Mr. Leonid Fedun said that the country should cut production by about 30% to push prices higher, not reduce selling prices too deeply like now.

According to Ms. Croft, Russia will probably cut exports over the summer to maximize economic damage to Europe.

Due to “alarmingly low” oil inventories and limited refining capacity, Europe is unlikely to be spared the impact if Russia goes ahead in cutting crude exports as soon as this summer.

“For Russia, higher oil prices could offset the impact of reduced export volumes this year.” Mr. Edward Gardner, economist at Capital Economics, said.

Urals crude, Russia’s main oil blend, even though it is trading at a discount, is still priced at $95 a barrel – much higher than it was a year ago, according to Gardner.

If Russia’s output falls, other parties may step in to curb the rise in oil prices. OPEC+ on June 2 decided to raise production to 648,000 bpd, however, this was not enough to fill the gap left by Russian energy.

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