But Russia concedes oil and gas production is expected to decline in 2023
Despite sanctions and price caps, the world continues to use Russian crude. Sanctions have not succeeded in denting crude cash flow into the Russian kitty in any significant manner.
Compensating for the loss of pipeline exports mainly to Europe, Russian seaborne crude exports have picked up, staying above three million barrels per day (bpd) for a sixth week, according to a Bloomberg report quoting a tanker tracking report. Despite a slight dip, Moscow was still able to ship 3.11 million bpd in the seven days to March 24, the report added.
The increase in seaborne flows reflects the diversion of crude previously delivered to Poland and Germany through the Druzhba pipeline, Bloomberg reported. The loss of those pipeline markets means an additional 500,000 bpd of Russian crude is now being exported through the country’s ports.
Russian Energy Minister Nikolai Shulginov told an energy forum in Moscow last Tuesday, “I can say today that we have managed to completely redirect the entire volume of exports affected by the embargo. There was no decrease in sales.” Ever since the sanctions were imposed on Russian crude exports, Moscow had been working to reroute its oil and oil product exports to Asia, Africa, Latin America, and the Middle East, away from its traditional markets in Europe. The efforts have succeeded.
However, not all is rosy for Moscow. Shulginov conceded that Russian oil and gas production was expected to decline in 2023 as Moscow comes under pressure from Western restrictions and a lack of European buyers. Speaking at the same event, Alexander Dyukov, CEO of Russian oil major Gazprom Neft, agreed, saying 2023 would be more difficult than 2022 and the pressure from sanctions would grow.
China and India have been absorbing most of this available Russian crude – at a discounted price. They are not bothered by the western sanctions. In complete disregard of the price cap, India continues to seek opportunistic purchases of cheap Russian crude. New Delhi is not committed to and is not obligated to buy Russian crude oil only below the $60 price cap of the Western nations, a source at the Indian oil ministry told Reuters last month.
Russian Deputy Prime Minister Alexander Novak said its oil sales to India jumped 22-fold last year. India is now the biggest buyer of Russia’s benchmark Urals grade crude. Deliveries to India in March were set to account for more than 50 per cent of all seaborne Urals exports, with China in second place, Reuters reported.
Turkey has also emerged as a significant buyer of Russian crude and coal in recent months. Some recent reports indicate that Pakistan, Indonesia and Bangladesh are also keen to get discounted Russian crude supplies.
Novak said energy revenues accounted for 42 per cent of Russia’s federal budget in 2022, up from 36 per cent in 2021. He said Russia’s energy industry was sustainable, despite the challenge of Western sanctions. Russia’s economy reportedly shrank by just 2.1 per cent in 2022 – far less than the previously forecasted up to 12 per cent due to the western sanctions.
Novak added that Russia needed to focus on boosting energy exports to so-called “friendly” countries and would continue developing the insurance tools needed to support this trade.
To consolidate crude sales to India, Russia’s largest oil firm Rosneft, signed a term agreement with Indian Oil Corporation last Wednesday to further raise the supply of Russian crude to India.
Rosneft’s chief executive Igor Sechin signed the deal during a visit to India in which he met with officials from the Indian government and the heads of some of the country’s largest oil and gas companies, Rosneft said in a statement.
“The parties also discussed ways of expanding co-operation between Rosneft Oil Company and Indian companies in the entire value chain of the energy sector, including possibilities of making payments in national currencies,” the Russian company said.
From a negligible buyer of Russia’s oil before the Russian invasion of Ukraine, India has become a key export market for Moscow, importing record volumes of Russian crude. Indian refiners are also adding value to Russian crude and selling it to Europe and the West.
Western sanctions are not having the crippling effect on the Russian economy as was intended. For now, it represents a win-win situation for Russia and the West. It meets West’s conflicting goals of crimping Moscow’s energy revenue while preventing an oil supply shock. And at the same time, it has not stopped Russia from maintaining a healthy level of crude exports at a price level not necessarily below the price cap of $60 a barrel.
For the time being, there is a lull on this crude war front.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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