Page 11 - bneMagazine March 2023 oil discount

bne March 2023 Companies & Markets I 11
bounced back. In 2022, China overtook Europe to become Russia’s top trading partner. Russia’s bilateral trade with China in 2021 reached $141bn, of which Russian exports to China amounted to $68bn, but trade volumes are believed to have grown sharply during 2022.
Russia had already been working on reorienting its hydrocarbons exports eastwards, as demand for gas and oil from East Asia was expected to continue to grow in the coming decades, while the green revolution will eventually lead to an end to Europe’s dependence on fossil fuels. As early as 2014, Russia and China signed a contract on the delivery of 38bn cubic metres of gas per year via the Power of Siberia pipeline.
The sanctions accelerated that process. Following its invasion of Ukraine, Russia slashed pipeline deliveries of natural gas to the European Union by more than half – cutting off some countries such as Bulgaria entirely – and the International Energy Agency (IEA) warned in a recent report that Russia could send as little as 25 bcm this year.
Conversely, China is critical to Russia’s plan to increase gas shipments to Asia following the loss of most of its market share in Europe. In January, Russia and China signed an intergovernmental agreement on pipeline gas deliveries via the Far East. The agreement sets out the key parameters for a 10 bcm per year gas supply contract that they clinched in February 2022.
Moscow and Beijing are also discussing a 50 bcm per year contract to underpin the construction of Power of Siberia 2, which would run from the Russian Arctic to China through Mongolia. It would supply gas from fields that until recently served the European market. The Far Eastern supplies would come from Gazprom-operated fields off the coast of Sakhalin Island.
Parallel imports
Russia also worked hard to secure new sources of imports after being cut off from European exporters for a wide variety of goods. Russian firms have found new suppliers in Asia,
or alternatively have managed to get around the sanctions
by using parallel import schemes, as bne IntelliNews reported in November.
Back in April 2022 Russia approved so-called “parallel imports” or “grey imports” to maintain supply chains. That means importing products without the permission of the copyright owner.
China became the main contributor to the recovery in Russian imports, increasing its deliveries by 21% year on year as of September, but other suppliers such as Turkey, Azerbaijan and Belarus also came to the fore. Many of the more sophisticated products like semiconductors and high-quality machinery are still missing, but consumer goods and basic agricultural and industrial inputs have mostly reappeared.
Meanwhile, Russia’s partners in the Eurasian Economic Union (EAEU) hiked exports to Russia by 70% y/y in the first seven
months of 2022, according to BCS GM. There are reports that some of Russia’s trade partners in the bloc – Armenia, Belarus, Kazakhstan and Kyrgyzstan – are simply rerouting supplies through these countries or local traders are taking advantage of the parallel import schemes to send hard to find goods to Russia. By end 2022, Russia-EAEU trade is anticipated to reach $127.2bn, up by $54.59bn y/y.
Kyrgyzstan, for example, has more than doubled its exports to Russia since the start of the war, while its imports from China have almost tripled, reported RFE/RL. While the data is incomplete, the hike in trade appears to be linked to re-exporting. Temir Shabdanaliev, head of the Association of Carriers and Logisticians of the Kyrgyz Republic, told RFE/RL that goods from Europe that were previously sent to Russia are now registered as deliveries to Kyrgyzstan
and Kazakhstan, but immediately dispatched to Russia after unloading. This could, however, be problematic for Kyrgyzstan, which risks being targeted by secondary sanctions.
European politicians are already getting suspicious. Krisjanis Karins, Prime Minister of noted Russia-hawk Latvia, warned on February 4 that traders were using Turkey, Kazakhstan and Armenia to evade EU sanctions on Russia. The three countries' sanctions-busting trade is breaching their compliance with EU trade embargoes on Russia, said Karins.
"It seems quite clear that traders are finding ways to legally trade goods, say with Turkey, Kazakhstan or Armenia, which are then resent to Russia, because these countries are not adhering to the sanctions regime", Karins told reporters in the Estonian capital Tallinn, as reported by Reuters.
Turkey the big winner
Turkey, in particular, has been a big winner from the sanction’s regime. Bilateral trade with Russia in 2021 amounted to about $30bn, with around $23bn of this being Russian exports to Turkey. As well as the high level of energy trade between the two countries, Russia’s need for parallel imports is also driving up bilateral trade.
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