One of the direct impacts of this war was on global crude oil prices, which hit record highs in the few months following the Russian invasion of Ukraine. In April, a barrel of Brent crude rose to $ 139 amid supply cuts and sanctions imposed by the United States and its allies.
The war had a far-reaching impact on the global energy system, disrupting supply and demand patterns and fracturing long-standing trade relationships. It has caused energy prices to rise for many consumers and businesses around the world, harming families, industries and entire economies of different nations.
In addition to being the world’s largest exporter of natural gas, Russia is the second largest oil exporter after Saudi Arabia and a member of the Opec + producer group that last week decided to cut production.
On Wednesday, Putin said Russia plans to keep oil production and exports at current levels until 2025 and that Moscow would not relinquish its leading position in the global energy market despite Western sanctions.
Who buys, who doesn’t
While some countries have stopped buying oil and gas from Russia, there are still many that continue to do so.
However, despite a decline in the amount of Russian crude purchased, the European Union (EU) continues to be its main buyer.
Russian oil imports into the European Union and the UK fell by 35% to 1.7 million barrels per day (bpd) in August from 2.6 million bpd in January. But according to the International Energy Agency (IEA), the EU is the biggest buyer of Russian crude oil.
This comes even as the EU has said it will ban the import of Russian oil from December 5 this year. It plans to ban maritime imports of Russian oil with a transitional period of six months for crude oil and eight months for refined products. The ban will most likely create an oil shortage due to the general lack of reserve crude volumes in the world. In total, this would cover around 90% of Russian oil imports into the EU.
Meanwhile, Australia, Great Britain, Canada and the United States have imposed a complete ban on purchases of Russian oil, while the nations of the Group of Seven (G7), including Japan, have pledged to ban or phase out oil imports. Russian on May 8.
Even before the ban was adopted, at least 26 major European refineries and trading companies voluntarily suspended spot purchases or announced plans to phase out a total of 2.1 million barrels per day (bpd) of Russian imports, according to JP Morgan.
US to replace Russia?
According to a Reuters report, imports from the United States have so far replaced about half of the 800,000 barrels of Russian imports lost, with Norway supplying about a third.
The US may soon overtake Russia as the largest supplier of crude oil to the EU and the UK combined: by August, US imports were only 40,000 barrels per day lower than Russia’s compared to an average of 1.3. million barrels a day pre-war, according to the IEA.
Outside the EU, Russia’s main crude oil export markets are China, India and Turkey.
Advantage for India, China
China and India benefit from discounts on Russian crude.
Imports of Indian crude from Russia have increased more than 50 times since April and now account for 10% of all crude purchased from abroad. Russian oil represented only 0.2% of all oil imported from India before the war in Ukraine.
According to reports, India is estimated to have earned Rs 35,000 crore by importing Russian crude at a discount.
The country emerged as the second largest buyer of Russian crude oil after China. Russian oil accounts for 12% of the country’s total oil purchase versus less than 1% before the war. In July, Russia became India’s second largest oil supplier, relegating Saudi Arabia to third place.
Meanwhile, China is buying cheaper energy supplies from Russia this year, reaping the rewards of a decline in European purchases.
China has gained access to cheaper energy while Russia is able to offset the losses of the European Union and other allies by reducing Russian export purchases due to the sanctions for the invasion of Ukraine. Moscow calls it a special military operation.
China, the world’s largest energy consumer and largest buyer of crude oil, liquefied natural gas and coal, imported 17% more Russian crude oil between April and July compared to the same period a year ago.
What are the alternatives for the EU
Under the impending ban, the EU will have to replace an additional 1.4 million barrels of Russian crude, with around 300,000 barrels per day potentially coming from the United States and 400,000 barrels per day from Kazakhstan, the IEA said.
Norway’s largest oilfield Johan Sverdrup, which produces medium-heavy crude similar to the Russian Urals, also plans to increase production in the fourth quarter, potentially by 220,000 barrels per day.
The IEA says imports from other areas such as the Middle East and Latin America would be needed to fully meet EU demand.
Some of Russian oil will continue to flow into the EU via pipelines as the ban excludes some landlocked refineries unless Russia decides to stop the flows.
How much the EU depends on Russia
Germany, the Netherlands and Poland were the top importers of Russian oil to Europe last year, but all three have the ability to import marine crude.
Landlocked countries in Eastern Europe, such as Slovakia or Hungary, however, have few alternatives to pipeline supplies from Russia.
The EU’s dependence on Russia has also been bolstered by companies like Rosneft and Lukoil, which control some of the bloc’s largest refineries.
According to the IEA, Russian crude oil flows, based on August loading data, have increased month by month to Italy and the Netherlands, where Russian major Lukoil owns refineries.
On September 16, the German government took control of the Rosneft-owned Schwedt refinery, which supplies around 90% of Berlin’s fuel needs.
Also in September, the Italian government said it hoped Lukoil would find a buyer for its ISAB refinery in Sicily, which represents a fifth of the country’s refining capacity.
(With input from Reuters)
