The battle between Russia and the West over crude oil exports intensifying
Is Russia succeeding in efforts to bypass, rather slowly and gradually, the Western sanctions over its crude exports? Some reports are saying yes.
For the first time ever since the Western sanctions on Russian oil exports were imposed last December, the price for Russian flagship Urals grade of oil has breached the $60-a-barrel limit,” the Wall Street Journal (WSJ) reported last week, quoting the commodities-data firm Argus Media.
One indication of the weakening financial squeeze on Moscow due to the sanctions is the narrowing discount Russia is now ready to offer on its Urals, the Russian benchmark. As compared with Brent, the discount has narrowed to $20 a barrel, according to the WSJ. Though the gap is still far wider than before the Ukraine war, it has halved since the beginning of the year.
Climbing Urals prices suggest that the Russian push to assemble an alternative network of tankers to which sanctions don’t apply is eroding Western influence over its prize export, WSJ quoted Sergey Vakulenko, an analyst at the Carnegie Russia Eurasia Center and former oil executive in Russia as saying. “This was an evolutionary process, and now we just see its results,” emphasized Vakulenko.
Russia’s revenue from oil and gas sales may increase by around 60 percent in July from May receipts to 844 billion roubles ($9.3 billion), Reuters reported last week. Quoting a report released in June by the Center for Research on Energy and Clean Air (CREA) titled Laundromat: How the price cap coalition whitewashes Russian oil in third countries, Alex Kimani of Oilprice.com underlined that the Western countries bought $42 billion worth of laundered Russian crude, in the form of various oil products, from nations that are friendly towards Russia, with India leading the pack.
For instance, India’s diesel exports tripled to over 1,600,000 barrels per day in March 2023 compared to a year ago, making diesel one of the largest components of India-Russian trade. Despite being a close U.S. ally, India thus continues to play both ways and without any consequences.
And without mincing words, China continues to import Russian crude in still larger volumes. In June, Russian oil exports to China touched a record. Russia exported 10.5 million tons of crude oil to China during the month, breaking the previous record of 9.71 million tons set in May, the Russian business daily Vedomosti reported Friday, citing Chinese customs data. This marked a 44 percent increase over last year.
As per the report, pushing aside Gulf crude exporters, including Saudi Arabia, Russia became China’s top crude supplier, accounting for one-fifth of China’s overall oil imports in January-June 2023. During the first six-month period this year, Russia has exported 52.6 million tons of crude to China, a 27 percent increase from the same period last year.
With China continuing to stockpile cheap Russian crude despite its weaker-than-anticipated growth, apparently in anticipation of forecasted supply deficits, Russia is targeting to ramp up energy deliveries to China by 40 percent in 2023, the report added.
“China could be preparing for some geopolitical situation: a Russian tailspin or a crisis in Taiwan,” Mukesh Sahdev, head of oil trading at the Norway-based researcher Rystad Energy, told the Financial Times last week.
And to reduce shipping costs and time, Russia is also testing the possibility of using the Arctic to ship oil to China – despite environmental issues. The Aframax-class tanker Primorsky Prospect is reportedly heading north up the coast of Norway, showing its destination as Rizhao in China, where it’s due to arrive on Aug. 12.
Using the so-called Northern Sea Route, or NSR, through the Arctic waters off Russia’s northern coast could shave as much as two weeks, or about 30 percent, off the voyage compared with the southern route through the Mediterranean and the Suez Canal.
While the shorter Arctic route could appeal to Moscow from a cost and logistics viewpoint, there has long been opposition to using the sea for merchant shipping. Organizations, including the UN’s intergovernmental body for climate change, have said doing so could have negative consequences for the region, including higher emissions and threats to marine ecosystems,” Julian Lee noted in his recent piece for Bloomberg.
Russia and the West are involved in an interesting war of nerves. This is pure geopolitics. The battle is on, and the final verdict is not out – yet.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.
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