Page 30 - Russia OUTLOOK 2023

• Energy embargo

Following the launch of the EU oil embargo on importing Russian oil on
December 5 most analysts agree that Russia can find new buyers for its
orphaned oil, but also that production will be cut by around 1mn bpd.

In the base scenario of Oxford Economics, Russia will manage to redirect most
of the crude that it used to sell to the EU to other destinations (China, India,
Turkey and others) after December 5. In this scenario, Russia's total oil
production and exports fall by 0.4mn bpd in Q4 2022, a further 1mn bpd in Q1
2023, and then remain flat until the end of 2024.

The brunt of the EU embargo to hit in Q1 2023, with its second phase covering
petroleum products coming into force in early February.

India and China do not have much interest in buying more petroleum products
from Russia. They have substantial refining capacity and prefer to buy deeply
discounted Russian crude and then sell oil products on the global market.

This practice will continue after December 5, as the EU has clarified that oil
products produced in a third country from Russian crude won't be covered by
its sanctions.

For at least a couple of years, the government can comfortably rely on its fiscal
cushion to cover some of its deficit, with the remainder financed with local
borrowing. Even in the "extreme" scenario when Russia cuts its oil exports by
40% next year, there should be enough money in the National Welfare Fund

30 Russia OUTLOOK 2022 www.intellinews.com