After the US and Canadian oil embargo, Russia will most likely redirect raw materials to Asian countries. China and India may become key buyers. But Asian diversification also has its downsides, experts say. A $20-30 discount on the Urals brand will lead to a loss of 300 billion rubles for the Russian budget.
India ramps up deliveries
Western sanctions against Russia due to a military special operation in Ukraine have led to a redistribution of global energy flows. After the US and Canadian oil embargo, Moscow dramatically increased oil supplies to Asian countries. India led the way, almost quadrupling its imports in March 2022. New Delhi is buying 360,000 bpd from Moscow this month, the Financial Times reported.
According to the head of the analytical department of Kpler, Alex Sales, India buys already shipped cargoes of oil from Russia, which cannot find buyers in Europe due to sanctions. He added that in March 2022, New Delhi moved away from its preference for buying Russian-Kazakh CPC (CPC) oil and switched to purely Russian Urals.
Who are the main buyers of Russian oil
Prior to the imposition of Western sanctions, the main buyers of Russian raw materials were the United States, EU countries, China, India and the United Kingdom. Canada lagged far behind its competitors in this regard, so its embargo did not greatly affect Russia’s export potential. Recently, Ottawa has been importing about 10-20 thousand barrels per day, Sergei Kondratyev, a senior expert at the Institute of Energy and Finance, stressed in a conversation with Gazeta.Ru. At the beginning of 2022, Washington purchased about 700 thousand barrels of Russian oil per day, but already in February it reduced imports to 400 thousand (7.4 million tons per year). London purchased from Moscow about 120 thousand barrels per day (5-6 million tons per year), the European Union – about 3 million barrels (142 million tons per year), the expert added.
“360 thousand barrels per day of Indian imports is exactly the average. Over the past week, for example, New Delhi bought 7 million barrels of Russian oil from Moscow. That is, daily deliveries have already reached the level of 1 million barrels,” Kondratyev said.
Professor of the Russian State University of Oil and Gas. THEM. Gubkin Valery Bessel also pointed to the possibility of a significant increase in Russian oil supplies to India this year. The Russian Federation has a great potential for commodity trade – India is the world’s third largest consumer of raw materials.
“The March figures for oil imports from Russia are a drop in the ocean. 360 thousand barrels per day – approximately 17-18 million tons per year. For comparison, Moscow exports almost 400 million tons of oil products per year. In this regard, the commodity trade between Russia and India has room to grow,” the analyst summed up.
The favorable price of Russian oil also attracts Chinese counterparties. Moscow is currently shipping almost 2 million bpd to Beijing, Kondratiev added.
“In the case of China, the groundwork for Russia is even greater than with India. At the beginning of 2022, the parties entered into a long-term contract for the annual supply of almost 100 million tons of oil (over 700 million barrels). In this regard, China in the coming years can seriously compete with the EU countries,” the expert said.
How much will the Russian budget receive less
According to the Institute of Energy and Finance, the damage from the forced Asian diversification of sales markets will cost Moscow about 300 billion rubles in April 2022. However, the negative effect of falling oil tax revenues is likely to be offset by a depreciation of the ruble. “Under normal conditions, in the absence of a gap to Brent and an exchange rate of 70-75 rubles per dollar, the oil and gas revenues of the Russian budget in April 2022 would be even less than now. But this is precisely the effect of the depreciation of the ruble, and not demand from Western countries, ”explained to Gazeta.Ru at the Institute of Energy and Finance.
Expensive transit and cheap oil
For Asian importers, price is a key factor in choosing a supplier. Together with the strengthening of international sanctions against Moscow, this allows Russian companies to now increase oil exports to China and India. In the coming years, these countries will become key raw material partners, Kondratiev suggested.
According to him, India made a choice in favor of the Russian brand Urals not by chance. Currently, stock quotes of domestic raw materials are traded at a large discount against Brent. However, in the Asian direction, Moscow may face certain difficulties. “The price of a barrel of Brent is now about $107, traders give a little more than $80 for Urals. As a result, we get a difference of almost $30.
But in the case of India and China, logistics costs for Russia will increase significantly, and delivering raw materials to Asia from the Novorossiysk port will take, on average, several days longer. Monthly additional costs will amount to $50 million,” the expert explained.
Washington may add problems
Problems with the redirection of Russian oil can be added by US sanctions pressure. Earlier, White House spokeswoman Jen Psaki hinted that India could also be subject to sanctions if it continues to buy Russian oil. At the same time, official Washington has previously recognized that such purchases do not violate the US embargo against Russia.
Professor of the Russian State University of Oil and Gas. THEM. Gubkina Bessel suggested that the fears of Indian buyers of Russian oil are now connected mainly with a fundamentally different model of interstate raw material settlements. The system of settlements in national currencies will allow New Delhi to buy raw materials from Moscow at lower prices, which Washington may be dissatisfied with.
“If earlier Moscow and New Delhi traded oil in dollars, then with the intensification of Western sanctions pressure, it becomes more and more dangerous to conduct such operations. The way out will be the use of rubles and rupees, however, this will take a sufficient amount of time. But the United States and the European Union themselves will lose from this, ”concluded Bessel.
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