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Some analysts have predicted that Western sanctions on Russia, combined with the EU's embargo on Russian crude oil and tanker insurance, would lead to the inevitable shut down of Russian oil wells as inventories build up in the pariah country.
But Russian President Vladimir Putin says that the country will not be blocking off their oil wells.
While oil embargos and sanctions may be temporary, blocking off oil wells isn't—at least not typically. What the world painfully realized shortly after the Saudi Arabia-Russian oil price war right before the pandemic is that when Russian wells are idled for a lengthy period of time, it can lead to permanent shut-ins, with operational challenges proving insurmountable in some of their maturing fields.
On top of that, if certain oilfields are pulled out of service, the quality of the Urals blend—made up of oil from multiple oilfields—could be altered, thereby decreasing its value in the market.
Putin, however, says that it will not do that, despite calls to shun the country's oil. Limited storage capacity, however, could force Putin's hand.
Putin's argument, though, is that the West will not be able to stop importing Russian crude oil entirely.
"As far as refusal from our energy resources is concerned, this is unlikely for the next few years, while it's not clear, what will happen during those few years. That's why, no one will pour cement into the wells," Putin told a televised meeting with young entrepreneurs, according to Reuters.
So far, the reality has been closer to Putin's scenario than the West would like.
Still, the U.S. EIA forecasted that Russian oil output will decline from 11.3 million bpd in the first quarter of 2022 to 9.3 million bpd in the final quarter of 2023 as a result of the EU embargo on both crude oil and refined product imports.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.