May 20, 2024

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How Russia can try to circumvent EU oil sanctions

How Russia can try to circumvent EU oil sanctions

The partial ban imposed by the European Union covers Russian oil brought into the bloc by sea, with an exception granted for imports delivered via the pipeline after opposition from Hungary.

Attila Kispendek | Afp | Getty Images

Moscow could respond to European sanctions on Russian oil by looking for other buyers of its crude or cutting production to keep prices high. Its actions will have a global economic impact – unless OPEC intervenes.

European Union leaders agreed on Monday to ban 90 percent of Russian crude by the end of the year as part of the bloc’s sixth package of sanctions against Russia since its invasion of Ukraine.

“It is clear that the Russian response will be closely watched,” Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note on Tuesday.

Russia The third largest oil producer in the world After the United States and Saudi Arabia, it is the second largest exporter of crude oil after Saudi Arabia, according to the International Energy Agency.

“What’s going on now will change the oil and natural gas trade in the future. Oil prices won’t drop any time soon, and the effects of the Russian sanctions will be felt for a few years,” said Hussein Al-Askari, a professor at George Washington University. University Business School. The United States should have used strong preemptive sanctions on Russia and been tougher with OPEC oil producers to increase oil production.

Read more about energy from CNBC Pro

Find other buyers

Whether Russia can offload the sanctioned oil and how much it can sell will affect oil prices globally. Roughly 36% of the EU’s oil imports come from Russia.

Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, said his country would look for other buyers for its oil.

“As she said yesterday, #Russia will find other importers,” Ulyanov said via Twitter, referring to European Commission President Ursula von der Leyen.

“Whether these barrels find homes in India, China and Turkey can depend on whether the EU ultimately chooses to target shipping and insurance services and whether the US chooses to impose secondary sanctions on Iran-style,” RBC’s Croft wrote.

Moscow already has two potential buyers for its crude: China and India. Countries were buying Russian oil at a discount Industry watchers say this looks set to continue.

While India traditionally imports very little crude oil from Russia – only 2% to 5% annually, According to market watchers Her purchases have risen in recent months.

India bought 11 million barrels in March, and that number jumped to 27 million in April and 21 million in May, according to data from commodity data firm Kpler. This is in stark contrast to the 12 million barrels it bought from Russia in all of 2021.

China was already the single largest buyer of Russian oil, but its oil purchases also rose. From March to May, it bought 14.5 million barrels — a threefold increase from the same period last year, according to Kpler data.

production cuts

Russia could also reduce its crude oil production and exports to cushion the blow to its finances. The deputy head of Russian oil company Lukoil, Leonid Fedun, said on Sunday that the country should reduce oil production by up to 30% to push up prices and avoid selling barrels at a discount.

“Officials in Washington have expressed concern that Moscow may move to reverse the orderly year-end decline by cutting exports over the summer to inflict maximum economic pain on Europe and test member states’ collective resolve to defend Ukraine,” Croft said. Tuesday.

She added that given the “alarmingly low” stockpile and scarcity of refining capacity, a preemptive Russian production halt could have a very detrimental economic impact this summer.

“For Russia, we believe that the impact of lower export volumes this year will mostly be offset by higher prices,” Edward Gardner, commodities economist at Capital Economics, wrote in a note on Tuesday. He expected Russian oil production and exports to decline by about 20 percent by the end of the year.

While Urals crude, Russia’s main oil blend, is trading at a discount to global standards, it is currently at $95 a barrel — still significantly higher than it was a year ago, according to Gardner.

But if Russian production falls, other players may step in to help tame prices. The Financial Times reported Thursday, citing sources, And Saudi Arabia is ready to increase crude production if Russia’s production drops significantly after the European Union sanctions.

The OPEC+ alliance, of which Russia is a part, is scheduled to hold its monthly meeting later on Thursday.

‘Deceptive’ shipping practices

Since the start of the Russo-Ukrainian War, there have been 180 changes in ship ownership from Russian to non-Russian entities, according to naval artificial intelligence firm Windward, which cited its own data.

These changes, recorded in just three months, were actually more than half of Russian ship ownership changes in all of 2021, Windwards said.

Many of the Russian ships have been sold to companies based mostly in Singapore, Turkey, the United Arab Emirates and Norway, according to Windward.

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