Page 4 - FSUOGM Week 15 2022

FSUOGM COMMENTARY FSUOGM

DATACRUNCH: Sanctions by

the numbers – oil

This article is part of the series DATACRUNCH: Sanctions by the numbers that

dives into the numbers and trends of UN voting, coal, oil, gas, grain.

RUSSIA RUSSIA dominates Europe’s oil supplies and is achieve Western objectives while minimising
the single largest supplier, accounting for a quar- self-harm.”
ter of all oil deliveries. Most of Europe now wants
to diversify away from Russian oil, but adding European oil demand
to the problems is that much of this oil is deliv- In 2019, the extra-EU crude oil imports came
ered not by ship but the Druzhba oil pipelines from Russia (27%), Iraq (9%), Nigeria and Saudi
that have been operating since the 1970s, which Arabia (both 8%) and Kazakhstan and Norway
makes switching supplier much more difficult. (both 7%).
Russia makes a lot of money from oil exports. Energy was targeted for the first time with a
Russia exports some 6mn barrels per day (bpd) ban on coal imports in the fifth package of sanc-
to Europe – over half its total exports – and tions passed last week. The EU is already work-
consumes a quarter of its output itself. China ing on a sixth package, which may contain new
buys less than 20% of these exports, while the bans on oil imports to Europe, which will be a lot
West normally absorbs over 70%. These West- more difficult to effect than coal.
ern imports represent more than half Russia’s The massacre in Kyiv’s suburb of Bucha on
entire oil output. At today’s prices, Kremlin tax April 3 has changed everything. Before that the
receipts on export oil alone – about $500mn per issue of the oil embargo was discussed as a hypo-
day – will cover 70% of Russia’s Federal Budget thetical. Now it is very likely to happen. “We have
for 2022, but the drive to ban Russian oil exports closed coal imports, now we have to look at oil,”
to Europe continues to face stiff resistance from European Commission President Ursula von der
some member states. Leyen said on April 8 after the approval of the
In the event of an embargo, Russia has threat- fifth round of sanctions. EU High Representative
ened to redirect its Western export volumes else- for Foreign Affairs Josep Borrell said a day ear-
where. But these “export substitution” threats are lier that "sooner or later this [oil embargo] will
hollow – the volumes are far too large to redirect. happen." MEPs voted 512 to 22 so far to approve
Russia can’t store the excess either, as its stor- a symbolic resolution demanding a total ban on
age facilities are already full to the brim because the import of coal, oil and gas from Russia.
since the war started oil traders have refused to And for Russia, this will be a very serious
buy Russian oil, even though there are no sanc- blow: according to the IEA, Europe accounts for
tions on the oil business yet. 60% of Russian oil exports, which earned Rus-
The wells can’t be turned off either, as the way sia $120bn last year, on a par with gas exports
oil drilling works, once the pressure falls it is very that earned $145bn, according to the Institute
hard to restart a well, and much of the oil in the of International Finance (IIF) estimates. And
ground is simply lost. A European ban on oil that revenue is only going up as oil prices soar,
exports would lead to Russia reducing its output while gas revenues are earned mainly from
by half and losing significant amounts of oil that cheaper long-term contracts. In March 2022,
could never be recovered, as tens of thousands oil accounted for 80.3% of all oil and gas budget
of marginal wells would be put out of business, revenues for the Russian budget. At the end of
according to Craig Kennedy, an associate at the 2021, the share of oil and oil products in oil and
Davis Centre at Harvard University. gas revenues amounted to approximately two-
“If export substitution is a chimera and a thirds, and in total export earnings, a third.
large-scale shut-in potentially catastrophic, Rus- The US has already banned Russian oil
sia is far more dependent on the West to absorb imports on March 9 that have risen since
its oil than many Western policy makers may Washington slapped a ban on Venezuelan oil
realise,” Kennedy says. “This dependency gives imports. But as bne IntelliNews reported, Russia
the West significant bargaining leverage – but only accounts for about 5% of US oil. As a net
only if it acts collectively. Properly exploited, it exporter of oil, the US can easily replace Russian
can be used to design smart oil sanctions that oil, and as the volumes are so small Russia can

P4 www. NEWSBASE .com Week 15 15•April•2022