Embargoes and price caps send Russian oil searching for new markets in Asia and Africa
Energize Weekly, March 22, 2023
Embargoes and price caps on Russian oil and petroleum products are taking a bite out of the country’s exports and revenues, which are down 42 percent year-over-year to $11.6 billion in February, according to the International Energy Agency (IEA).
The embargoes and caps imposed by the European Union (EU) and the G7 industrial nations – which include Canada, the U.S., Australia, and Japan – are in retaliation for the Russian invasion of Ukraine. The moves have scrambled world oil markets and sent more Russian oil to Asia.
The EU has a ban on Russian refined petroleum products including diesel and fuel oil imports. The G7 also imposed a $60 a barrel cap on Russian crude oil. All with the aim of limiting Moscow’s ability to fund its war in Ukraine.
While Russian oil production remained near pre-war levels, exports fell by about 7 percent to 7.5 million barrels a day, as shipments to the EU plunged 43 percent to just 580,000 barrels a day, according to the IEA monthly oil market report.
In the last year, about 4.5 million barrels a day of Russian oil that had been going to the EU, North America, Japan, and South Korea had to find other markets, with some product ending up being stored on tankers floating at sea.
“Willing buyers in Asia, namely India and, to a lesser extent, China, have snapped up discounted crude oil cargoes, but increasing volumes on the water suggest the share of Russian oil in their import mix may be getting too big for comfort,” the IEA said.
Russian oil accounted for 40 percent of all crude oil imports for India and 20 percent of Chinese imports in February. The two countries absorbed more than 70 percent of Russia’s crude exports last month.
While Russian crude oil is heading almost exclusively to Asia, other petroleum products no longer going to the EU are finding a more diverse set of buyers.
While Russian petroleum product imports were down by 2 million barrels a day to the EU and the G7 countries and Latin American shipments were flat, exports to the Middle East, Turkey and Africa were up 715,000 barrels a day.
African imports rose by 300,000 barrels a day, Turkish imports increased by 240,000 barrels a day, and Russian exports to the Middle East were up 175,000 barrels a day. Exports to Asia grew by less than 300,000 barrels a day.
These increases, however, did not offset the losses in the EU and North American markets.
“The lack of buyers saw oil pile up on the water,” the IEA said, as product exports overall dropped by 650,000 barrels a day year-over-year.
“It remains to be seen if there will be sufficient appetite for Russian oil products now that the price cap is in place or if its production will start to fall under the weight of sanctions,” the IEA said.
Revenues are already dwindling. Between January and February, Russia’s oil monthly export revenues dropped by $2.7 billion or nearly 19 percent.
The efforts for Russian exports to find new markets has led to a “dislocation in global trade,” the IEA said, and to a buildup in supplies, which in turn has held Brent crude oil futures in a relatively narrow band of $80 to $85 a barrel.
“The market is caught in the crosscurrents of supply outstripping still lackluster demand, with stocks building to levels not seen in 18 months,” the agency said. “Much of the supply overhang reflects ample Russian barrels racing to reroute to new destinations under the full force of EU embargoes.”
