Russia will likely redirect its oil flows to Asia as Europe seeks to minimize its intake of Russian fossil fuels, with the former becoming “the default market” for Russian crude, Daniel Yergin, vice chairman of S&P Global told CNBC.
After Western sanctions on Moscow for its actions in Ukraine, Russian oil flows abroad have declined and, according to Yergin, are going to be redirected to Asia.
“There’s a lot of self sanctioning that’s going on that’s simply people not picking up oil, banks not providing letters of credit, shippers not showing up and, indeed, people in some ports not receiving Russian oil,” the energy industry expert also said.
This is problematic both for the former importers and for Russia. For importers, because Russia is the world’s largest oil and oil product exporter and the second-largest crude exporter after Saudi Arabia, and for Russia itself, because the sanctions and self-sanctions leave it with millions of barrels of unsold oil.
“I would have said five weeks ago Russia’s an energy superpower ... I think it’s still going to be an important player. But it’s going to be a reduced energy power compared to where it was before,” Yergin said, referring to the Russian oil pivot to Asia, assuming Europe will be successful in weaning itself off Russian crude.
Russian oil currently accounts for almost 30 percent of the continent’s total petroleum imports and 51 percent of Europe’s oil product imports.
Yet, with all the sanctions and the bans from the U.S. and the UK, Russian oil is selling at a steep discount, which has made it more attractive to the large oil importers in Asia, including China and India.
India is a particularly good case in point as it does not normally import a lot of oil from Russia. However, with prices on the rise, the country, which depends on imports for 85 percent of its oil consumption, is understandably looking for a bargain.
By Irina Slav for Oilprice.com
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The claim by the author about customers shunning Russian oil is contradicted by current level of Brent crude oil prices. If that claim was true, we would have seen Brent crude hit $140-$150 a barrel by now.
In the current tight global oil market not a single barrel of Russian oil will be left unsold. Even if for the sake of argument Russia does sell less volumes of oil, they will be more than compensated for by the rising oil prices so its earnings are hardly affected.
And contrary to Daniel Yergin’s projection, Russia won’t only continue to be the world’s energy superpower well into the future, but the very last barrels of oil will most probably come from the Russian Arctic and two other regions, namely the Arab Gulf region and Venezuela’s Orinoco Belt.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London