Page 49 - RusRPTJul22

Since February 2022, Western energy majors and oilfield service companies have written off their assets, fearing reputational damage. The European Union agreed on 30 May to a phased Russian oil embargo that will further aggravate the industry’s viability. The measure will go into effect at the end of this year and will target seaborne crude oil shipments and petroleum products from Russia, including an insurance ban on maritime shipping. It is expected to apply to 90% of Russian imports, amounting to US$22 billion per year in lost revenue for Russia.
To counter the blow from Western measures, Russia is set to accelerate its pivot to Asia to develop new markets for its commodities.
India has been purchasing record amounts of discounted Russian crude, but its refineries are already at their capacity. China has been quietly replenishing its strategic reserves, but Beijing would be wary of abandoning its diversification policy and overly relying on Russia. At most, Russia could reroute around one-third of its imports previously destined to the EU to Asia.
Following the invasion of Ukraine, the country’s oil production declined 10% in April compared with March and it is slated to drop even further – by 17% by the end of 2022. Gas production is also expected to fall by 5.6% this year. Falling domestic demand and self-sanctioning from international buyers have been the key drivers behind the decline. Western Russia’s import substitution efforts, launched in 2014, failed to alleviate this dependency and foreign companies accounted for 50–60% of the Russian market.
In the long term, Russia’s influence as an energy superpower will wane, as Moscow decouples from its traditional markets. The European Commission’s plan, known as ‘REPowerEU’, sets out steps to end the dependency on Russian fossil fuels by 2027 and accelerate the green transition.
Energy decoupling will undo the very foundation of EU–Russia relations based on the exchange of Russian hydrocarbons and European technology and capital. Losing Europe as the key export market will mean that the windfall from the export of hydrocarbons will never be the same. This will affect the structure of the state budget, which today is 42% dependent on oil-and-gas sales, and alter the fabric of the Russian economy.
2.17 How effective are the EU’s sanctions on exports to Russia?
How effective are the EU sanctions on exports to Russia? The ban on the import of Western technologies, raw materials, materials and components to Russia and the voluntary exodus of Western
49 RUSSIA Country Report October 2020 www.intellinews.com