Page 30 - TURKRptJun22

30 I Cover story bne June 2022
THE FOURTH RUSSIA
The energy wars
Ben Aris in Berlin
The biggest change to the world over the last five years since
the war in Ukraine ended is the remaking of the world energy order. While the West re-orientated itself
away from Russian oil and gas and Ukraine emerged as a European green energy powerhouse, the Russian energy business was just too deep-rooted to tear up completely. Commodity laundering and Russia’s “Crude Cocktails” have proved too lucrative for too many of
the non-aligned nations to ignore.
In the first months after Russia’s invasion of Ukraine in February 2022 Europe was adamant that it would block Russia’s oil and gas. Then it tried to do it. While volumes did fall, that was more than compensated
by the associated jump in prices.
An attempt to impose a sixth energy package of oil bans was gutted by Russia’s friends in Central Europe and Balkans, which were also afraid of the damage cutting off supplies of hydrocarbons would have on their economies.
In the first years that followed the Kremlin found dozens of ways to
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dodge the sanctions and willing buyers in the Global South countries that were eager to buy deeply discounted oil, gas and commodities and at the same time curb the Western energy sanctions used to punish Russia – a cudgel they feared would eventually be turned on them.
Sanctions wound but don’t kill
Russia’s oil production fell from a noughties’ peak of just over 11mn barrels per day (bpd) to 9mn bpd in the first months of the war before diminishing
to 7mn bpd by the end of the year as countries like Germany abandoned Russian oil imports completely.
But since then the volumes produced have slowly recovered to 9mn bpd as five years of heavy investment brings new export capacity online. The main impact of the sanctions has been to force Russia to sell its oil at a 30% discount to the rest of the market, due to its reduced customer base
and the risk of secondary sanctions, creating a two-speed market for oil.
The EU tried to wean itself off Russian oil entirely, but only partially
succeeded, as too many countries
were too dependent on Russian oil and several of them were not prepared to take the pain of replacing cheap and convenient Russia oil with supplies from elsewhere. Brussels' reluctance
to pay for Hungary’s retooling of its refineries to process the sweeter blends became a major factor in its decision to refuse to put the sanctions through.
Russia exported 231.6mn tonnes of oil in 2021, and 111.2mn tonnes (49%) went to EU countries plus Norway
and the UK, according to the Federal Customs Service. Europe managed to halve the amount in 2022, with Turkey and Hungary taking the lion’s share.
Russian crude cocktails
The passage of the sixth package of sanctions in the summer of 2022 was extremely difficult to pass. Hungary, Bulgaria and Slovakia, all connected to the legacy Druzhba oil pipelines built in the 1970s, refused to end imports of Russian crude for both political and economic reasons. In the end a compromise was thrashed out but despite Brussels' best efforts, Russia continues to export oil
to Europe, albeit at reduced volumes.