Since Russia invaded Ukraine in late February, several countries have introduced sanctions on the country, restricting trade and halting imports of Russian energy. This has led to severe oil and gas shortages around the world. But some governments are using this as an opportunity to build a closer relationship with Russia while demand for its huge oil and gas supplies is low, providing countries with low-cost energy imports.
While Australia, Canada, the UK and the US have introduced outright bans on Russian oil purchases, the EU and various other state governments around the world have refused to do the same. The introduction of sanctions and import bans in Russia is believed to hit its economy hard, encouraging President Putin to withdraw from the conflict in Ukraine. However, many governments recognize the importance of Russian oil and gas supplies, as one of the world’s top three crude oil producers.
In 2021, Russia’s oil production totaled 10.5 million bpd, which is equivalent to 14 percent of world supply. Russia exported roughly 4.7 million bpd of crude last year, with China its top importer with around 1.6 million bpd, while it supplied 2.4 million bpd to European countries.
In Europe, Germany, Hungary and Bulgaria are some of the countries continue to buy Russian oil and gas, which makes up a large proportion of their energy supplies. Some international energy companies such as Trafigura and Vitol have also stated that they will maintain long-term contracts with Russia to continue buying its crude.
But there are no countries more devoted to Russian oil today than India and China. Both countries continue to buy cheap Russian oil as many Western countries reject Russian energy in an anti-conflict position. In fact, Russian oil exports to India have increased significantly since the invasion and its price has fallen as international demand for the energy source declines. Experts believe that China will also soon increase its import of Russian crude.
The continued reliance on Russian oil supplies is mainly due to the skyrocketing oil price in recent months, leading governments to seek the cheapest options. For China and India, maintaining energy security through access to low-cost oil sources is a top priority.
Related: Saudi Arabia raises oil prices despite record discounts for Russian crude
Russia has been offering its Urals crude at a significant discount to encourage countries to maintain their partnerships with the oil giant as the conflict continues. With the US and other countries around the world refusing to buy Russian oil, it could be left with excess oil supplies by the end of the year if it can’t sell it to alternative markets.
Earlier this month, the The International Energy Agency stated: “Russia’s Urals crude is being offered at record discounts, but uptake is limited so far, with Asian oil importers, for the most part, sticking to traditional suppliers in the Middle East. East, Latin America and Africa”. And “as of mid-March, we see the potential for 3 million barrels per day of Russian oil supply to be shut off from April, but that could increase if restrictions or public condemnation increase.” the organization said.
It is not clear if this will continue to be the case or if the temptation to buy cheap oil will be too great for some. In India, the government has decided to increase its imports of Russian oil. There were no regular crude imports to India in 2021 and none recorded after December, but since the beginning of March, five cargoes of Russian oil, about 6 million barrels, have been shipped to India. Russia is believed to be able to offer India a discount of around 20 per cent compared to Brent prices, making it very attractive at a time of record prices and energy shortages. India currently imports between 80 and 85 percent of its crude, meaning this is a strong economic decision.
In China, the government has, so far, refused to denounce the Russian invasion from Ukraine This is probably a strategic move to maintain its strong trade relations with Russia. China is the world’s largest importer of oil and natural gas, and in 2021 Russia was China’s top importer. second largest oil supplier. China therefore remains heavily dependent on Russia for its energy security. There is already evidence to suggest that China will continue its partnership with Russia after it has maintained its oil imports from both Iran and Venezuela despite US sanctions on the two oil-rich states.
So could this be an opportunity for countries willing to maintain relations with Russia to gain access to cheap energy and solidify their trade ties? For some, it may be an issue of economics versus politics, as energy security is simply too important to condemn Russia’s actions in reducing its oil and gas imports from the country. The EU is likely to follow the actions of the US and other governments to stop oil imports from Russia, but for China and India, the outlook is not so certain.
By Felicity Bradstock for Oilprice.com
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