Page 31 - TURKRptJun22

bne June 2022 Cover story I 31
The argument for cutting off Russian exports to Europe has shifted as the attempts to impose a total oil embargo sent prices soaring at the start of 2024 to briefly break above the all-time high of $147 set in July 2008. Diversification away from Russian oil, but not cutting it off completely, has created a more balanced market that has brought prices down to below $70 a barrel in the last two years and as Russia must sell its oil at a deep discount that has hurt its budget revenues far more than cutting off oil deliveries completely. The Russian budget technically has a break-even price of $42 for a barrel of oil, well below current market rates, but once you factor in the discount,
the budget is barely breaking even.
This has also kept countries like Hungary happy, as they can still source cheap oil from Russia also at greatly reduced prices, and it has significantly reduced the cost to Europe of the sanctions.
The sanctions leakage has been significant. Germany joined the
direct embargo at the end of 2022 but continued to import Russian oil indirectly for its big refineries near Berlin, buying oil arriving in the Polish port of Gdansk but also availing itself of the so-called “crude cocktails” of oil blends that started appearing on the market. A Latvian blend partly consists of Russian Urals blend and the Kazakh blend mixes Russian and oil from the Kazakh fields which
is exported from the Russian port of Novorossiysk on the Black Sea. Shell was caught doing this in the first months of the war when it blended 49% of Russian diesel fuel with 51% of diesel from
other origins, giving Russian products the status of “non-Russian origin.”
The cocktail blends have in the meantime become extremely widespread as part of the so-called “commodity laundering.” US officials admit that they are frankly unable to prevent a large part of this business from happening as oil and refined products are shipped around
the world as part of the complex international commodities trade. The Russians have already proved they are adept at abusing the international
financial system, but they are even better at busting sanctions through “commodity laundering”, as once mixed, it is impossible to tell where a petroleum product originated. Experts estimate Russia has added some 2mn bpd to exports via the schemes.
Russian tankers make ship-to-ship transfers in the middle of the ocean or at friendly ports to create new blends that have sulphur contents that specifically target certain refineries configured
to cope with that. Another variant
on the cocktail scam has been India’s boosting its imports of Russian crude starting early in 2022, refining it into petroleum products, and then selling those to the US as “made in India.”
Shipping in the crosshairs
The EU also tried to shut down Russia’s access to oil tankers, which mixed results. Russia sent 75% of Russian oil exports to Europe by tanker before the war, but in May 2022 it was completely prohibited by the end of that year.
The sixth package of sanctions threatened secondary sanctions on international shipping firms and insurance companies to prevent Russia sending oil by sea, but
for Greek shipping meant that Russian exports to Europe fell by only 25%
in the first year of sanctions and
then to half by the end of 2024.
In the meantime, Russia was working hard to boost exports to new clients. China's share of Russian exports was 31% (71mn tonnes) before the war and is now half. India's share was 1% (1.9mn tonnes) but has risen to 10% in the same period. India’s imports of Russian oil were up nine-fold in just the first three months
of the war, albeit from a very low base.
Deliveries to Asia in general have climbed steadily over the last five years from 1mn bpd in 2022 to 3mn bpd
now, or a third of Russia’s reduced oil output of 9mn bpd, mitigating much of the EU sanctions impact. The trebling
of the ESPO pipeline that runs from Siberia to Asia that is due to come online this year will add another 1mn bpd.
In the last five years Russia has invested very heavily into expanding its fleet of ships by pressing its huge shipyards into service, and has significantly expanded its shipping capacity that covers much of the shortfall while the new eastward bound pipelines are under construction.
“The crude oil cocktail blends have in the meantime become extremely widespread
as part of the so-called “commodity laundering”
the effort was gutted after Greece, which accounts for half the international fleet, successfully lobbied for an exemption. The insurance sanction threat didn't work either, as Russian oil producers were able to get Russian insurance.
Russian exports to Europe via the Druzhba pipeline was exempted as
well for Hungary, the Czech Republic, Slovakia and Bulgaria, which collectively accounted for 8% of Russia’s oil exports in 2022, and still do.
The combination of the Druzhba pipeline exports, the use of Russia’s own fleet of ships and the exemptions
Another route via Mongolia will be hailed as a “game-changer” by analysts when
it comes online in the next few years.
By 2030 Russia’s oil export infrastructure should be fully reoriented to the east, experts say. Over the last five years
the continuous expansion of the Northern Sea Route (NRS) due to global warming has led to a boom in the volume of nuclear-powered icebreakers traversing Russia’s northern coast between European Russia and Asia.
Gas still waiting
The story with gas was more complicated, as gas is almost exclusively delivered by
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