18.05.23 Review

Old Sanctions Have Crumbled New Ones Are Needed: Russia is selling more oil, putting pressure on OPEC+ partners in Asia

In April, Russia exported more  oil than it has since the beginning of its full-scale invasion of Ukraine, according to the International Energy Agency. India and China accounted for 80% of these exports. However, these revenues lagged behind last year's figures as oil prices are currently significantly lower than they were then. The Russian budget has suffered even more severely. Although the situation is expected to improve with the implementation of new rules for the calculation of Urals crude prices for tax purposes, it is unlikely that the projected revenues for the 2023 budget will be achieved. Experts believe that Russia will be able to maintain its foothold in Asian markets as long as Urals crude is sold at a discount compared to Middle Eastern and African oil. However, Ukraine's allies aim to make things more difficult for Russia by imposing restrictive measures against the shadow fleet of tankers amassed by Russia. These measures are included in the 11th package of European sanctions, which is almost ready to be finalised.

According to calculations made by the International Energy Agency (IEA), in April 2023, Russia exported a larger volume of oil than it has since the beginning of the war with Ukraine, averaging 8.3 million barrels per day. By comparison, in 2022, Russia exported an average of 7.7 million barrels per day, and in 2021, 7.5 million barrels per day. In the latest review of the global oil market, IEA experts explain the increase in shipments as Russia's endeavour to compensate for the decline in revenue. In April, the oil sales revenue amounted to $15 billion, which stands at 27% less than in April 2022, when a barrel of Brent crude was priced at $110. Budget revenues decreased even more significantly, by 64% (according to figures from the Russian Ministry of Finance), due to the fact that the old rules for calculating prices no longer applied for tax purposes. The new rules (where the price of Urals crude is linked to the price of Brent with a certain discount) just came into effect in April.

India and China accounted for 80% of Russia's total exports (5.2 million barrels per day) in April. Bloomberg has reported that Russia managed to overtake its OPEC+ partners from the Middle East and West Africa, who were traditional suppliers to this region. In April, India imported 1.9 million barrels of oil from Russia per day, compared to just 65,000 barrels before the war. Supplies to China increased by 80%, reaching 1.5 million barrels per day. Experts interviewed by Bloomberg believe that Russia will maintain its presence in these new markets as long as its oil is priced lower than Middle Eastern and African oil. As of May 15th, according to Bloomberg's analysis of Argus data, a barrel of Urals crude, including its transportation costs, was $12 cheaper for Indian buyers compared to a barrel of Brent. Thus, according to the IEA, it has been fairly easy for Russia to find new buyers to replace Europe , which has imposed an embargo on Russian oil.

How Russian oil took over the Indian market. Indian oil imports, thousand barrels per day

Approximately half of the deliveries are made by a specially formed ‘shadow fleet’ of tankers, primarily owned by Greek companies, according to S&P Global. Oil is transferred from Russian tankers to these vessels at sea. Politico has learned that the 11th package of European sanctions, which is almost ready to be implemented, will include measures aimed at preventing this scheme. Specifically, they want to prohibit the participating vessels from entering European ports, and ship owners who disable transponders may face penalties. There is also discussion of the possibility of banning the transshipment of oil in European waters. However, experts believe that if Greece is ‘closed off,’ the transshipment will take place via Turkey. 

The controversy over Russian oil arose recently at the EU-India summit held in Brussels. Europe accused India of raking in profits from the supply of processed Russian oil to Europe. Indian representatives argued to the contrary, contesting that according to EU rules, when the product is sufficiently processed, it ceases to be ‘Russian,’ and therefore, accusations of sanctions evasion are unfounded.

Nevertheless, the increase in supply volume to Asia has only partially compensated for the losses to the Russian budget due to the decrease in oil prices and the impact of sanctions. According to the Ministry of Finance, the average price of a barrel of Urals crude was $51 from January to April, rising to $58.6 in April, while the budget was calculated on the basis of $70 per barrel. By mid-May, the price of a barrel of Brent had fallen below $80. Based on April data on global storage capacity, the IEA does not expect to see any significant increase over the coming months, despite growing demand from China.