Russia is struggling to sell oil as buyers flee the stigma, logistical challenges and fears of new sanctions that come with dealings with Moscow following the invasion of Ukraine.
Even without direct sanctions on its energy industry, Russia will lose around one million barrels per day (bpd) in its oil exports, according to analyst Jarand Rystad, head of Rystad Energy, compared to the 10.5 million bpd that she sold last year.
And this despite the scarcity of global supplies which is driving up prices.
North Sea Brent crude oil – the industry benchmark – soared to nearly $120 a barrel this week, while gas hit a record high.
OPEC and other major oil exporters, including Russia, refused to increase production beyond previously agreed levels when they met on Wednesday, dashing hopes of easing supply pressures .
The price may be working in Russia’s favor, but it faces a major blockage from buyers.
Energy Aspects estimates that 70% of its oil exports are crippled as brokers and refineries avoid Moscow despite the hot market.
For now, Western sanctions over the invasion of Ukraine have avoided the Russian energy sector, since Europe depends so much on it.
Germany imported 55% of its gas from Russia last year, and its promises to reduce that figure and boost renewables like wind and solar will take years to materialize.
Pipeline deliveries continue from Russia, but with the threat of global condemnation and potentially more sanctions to come, European importers are looking elsewhere.
Finnish energy group Neste says it has “largely replaced” Russian crude with alternatives such as North Sea oil.
The Swedish bituminous products manufacturer Nynas announces that it will completely end purchases of Russian raw materials.
Some non-Russian crudes like Kazakh oil are also penalized since they are exported through Russian ports, which have been blacklisted by shipping companies.
Nevertheless, some buyers could return if the West rules out sanctions against the energy industry for good.
“We should start seeing which buyers are ready to resume buying and which are not,” said Energy Aspects analyst Livia Gallarati.
“China and India are still not buying, but we believe they will slowly start buying rough once issues with shipping, insurance and payments are resolved,” he said. -she adds.
India, which also depends on Russia for military supplies, called for a ceasefire but refrained from condemning the invasion.
China, Russia’s biggest trading partner for more than a decade, has yet to condemn the attack.
Despite their size, however, the pair lacks the capacity to offset all of Russia’s energy export losses.
Western companies took quick and decisive action last week.
The British BP and Shell, as well as the Norwegian Equinor, have decided to end their Russian operations entirely.
Germany has suspended the controversial Nord Stream 2 gas pipeline from Russia.
Proposed new energy infrastructure could also be hampered, such as Rosneft’s flagship Vostok Oil project in Siberia.
Swiss oil trading giant Trafigura said it was “considering options” on its minority stake in Vostok.
With Russia sidelined, European buyers are turning to crude-rich Middle Eastern oil.
However, the two nations with the most spare capacity – the United Arab Emirates and OPEC kingpin Saudi Arabia – are reluctant to increase production.
One uncertain factor is Iran, where final talks are underway with world powers to lift its own set of sanctions related to its nuclear program.
Tehran has said it is ready to increase exports if a deal is struck, but how quickly its oil sales could impact the market remains to be seen.
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