All of Europe’s efforts to slap sanctions on Russian oil and gas may have been in vain. While the European Union has shown considerable success in weaning itself off of its heavy Russian gas dependence, Asian countries have not followed the same path. The result has been a windfall of cheap energy for China and India and an extreme softening of the intended blow to Moscow.
Despite the West’s best efforts to push a coordinated attack on the Russian energy economy in condemnation of the Kremlin’s ongoing war in Ukraine, some of the biggest economies in the world haven’t cooperated. In fact, energy giants including China and India have capitalized on the sudden surplus of Russian fossil fuels, snapping up bumper crude oil purchases to the extent that, just last month, Markets Insider reported that “China and India are buying so much Russian oil that Moscow's now selling more crude than it was before invading Ukraine.”
And since that report, Asia’s purchases of Russian energy supplies have only increased. Thanks to a crippling heat wave, grids across Asia are under extreme strain, and demand has sharply risen for coal, gas, and fuel oil. According to figures from data intelligence firm Kpler, coal exports to Asia have jumped by a third as compared to last year, fuel oil exports just had their two highest months on record, and shipments of LNG have experienced a relatively large uptick as well.
As of now, Russian oil represents nearly 20% of India's annual crude imports, compared to just 2% in 2021, according to figures from the Indian state-controlled Bank of Baroda. Together, China and India have emerged as the “most enthusiastic buyers of discounted Russian oil,’ and now Russian coal, gas, and fuel oil, but other Asian nations have also been cashing in on the windfall, most notably South Korea, Vietnam, Malaysia, and Sri Lanka. Turkey and Bulgaria, too, have significantly increased their imports from Russia. Despite its membership in the EU, Bulgaria has an exemption from the ban on Russian oil, allowing the nation to continue to import it by sea. Related: Clean Energy Megaprojects Face Iron Law
“The worst place to be right now amid these searing temperatures is South Asia, especially poorer nations like Pakistan or Bangladesh,” John Driscoll, director of JTD Energy Services Pte in Singapore, was quoted by Bloomberg. “When you can’t even take care of your people’s basic needs, it’s very hard to care too much about international affairs.”
But the reality is that, since the very beginning of this war, there was never a global unified front taking a stand against Russia’s actions in Ukraine. Indeed, a Bruegel report from earlier this year said that nearly 60% of the global population either felt neutral about the Russian invasion of Ukraine or actually endorsed Russia’s aggression. As a result, and as we can clearly see now in Asia, sanctions against Russian energy are essentially toothless without broad cooperation.
However, Bruegel argues that what appears to be resilience in the Russian economy and the wholesale swapping-out of Western markets for Eastern ones can’t last. In fact, Bruegel argues that the sanctions are rather beside the point. “Perhaps the most important change is that by exposing the EU’s dependence on fossil fuels so blatantly, Russian aggression has accelerated the energy transition, and not just in the EU,” the February report states. “The Russian economic model is totally dependent on an industry that will become extinct.”
The shake-up of global trade agreements and geopolitics has undeniably changed the agenda for powerhouse economies that have enough sway to change the trajectory of the global energy market as a whole. By flexing its leverage, Russia has shot itself in the foot. In direct reaction to the fallout between Brussels and the Kremlin, Western economies are re-prioritizing domestic energy supply chains, with a major emphasis on renewables. Together, war and subsidies may have knocked ten years off of the green transition timeline, the Economist reported earlier this year. The International Energy Agency, too, has reported that Russia’s war has triggered a “turbo-charging” of the clean energy transition, predicting that fossil fuels will peak in just five years.
By Haley Zaremba for Oilprice.com
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