How could Russia try to circumvent EU oil sanctions?

Moscow could respond to European sanctions on Russian oil by looking for other buyers for its crude or cutting production to keep prices high. Its actions would have a global economic impact, unless OPEC intervenes, notes CNBC.

EU leaders agreed on Monday to impose a 90 percent ban on Russian crude by the end of the year as part of the bloc’s sixth package of sanctions against Russia for invading Ukraine.

“The Russian reaction obviously needs to be closely monitored,” said Helima Croft, a senior executive at RBC Capital Markets.

Russia is the world’s third-largest oil producer after the United States and Saudi Arabia, and the second-largest exporter of crude oil after Saudi Arabia, according to the International Energy Agency.

“What is happening now will change the oil-gas trade in the future. Oil prices will not fall soon and the effects of Russian sanctions will be felt for a few years,” said Hossein Askari, a professor at the George University School of Business. Washington. “The United States should have used strong precautionary sanctions against Russia and toughened up with OPEC oil producers to increase oil production.”

In search of other buyers

Whether Russia manages to get rid of the crushed sanction and how much it can sell from it will affect world oil prices. About 36% of EU oil imports come from Russia.

Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, said the country would look for other buyers for its oil.

“As he rightly said yesterday, Russia will find other importers,” Ulyanov said on Twitter, referring to Commission President Ursula von der Leyen.

“Whether these barrels will go to India, China and Turkey may depend on whether the EU ultimately chooses to target shipping and insurance services and whether the US chooses to impose minor sanctions on Iran,” Croft said.

Moscow already has two potential buyers for its crude: China and India. These countries have bought Russian oil at a discount and industry analysts say this seems likely to continue.

While India traditionally imports very little crude from Russia – only 2% to 5% per year, according to market analysts – its markets have skyrocketed in recent months.

India bought 11 million barrels in March, up from 27 million in April and 21 million in May, according to data from commodity data firm Kpler. This is in stark contrast to the 12 million barrels it bought from Russia in 2021.

China was already the largest single buyer of Russian oil, but its oil markets have also soared. From March to May, it bought 14.5 million barrels, a threefold increase over the same period last year, according to Kpler.

Production cuts

Russia could also cut crude production and exports to ease the blow to its economy. On Sunday, the vice-president of the Russian oil company Lukoil, Leonid Fedun, said that the country should reduce oil production by up to 30% to push prices up and avoid selling barrels at a discount.

“Officials in Washington have expressed concern that Moscow may cut exports over the summer to maximize economic impact in Europe and test member states’ collective determination to defend Ukraine,” Croft said.

A Russian “shutdown” could have a very damaging economic impact this summer, he added.

“For Russia, we believe that the impact of lower export volumes this year will be offset mostly by higher prices,” said Edward Gardner, a commodity economist at Capital Economics. He predicted that Russian production and oil exports could fall by about 20% by the end of the year.

While Urals crude, Russia’s main oil export, is trading at a discount from world benchmarks, today at $ 95 a barrel, it is still well above what it was a year ago. time, according to Gardner.

But if Russian production falls, other players can step in to help control prices. The Financial Times reported on Thursday, citing sources, that Saudi Arabia was ready to increase crude production if Russia’s production fell sharply following European Union sanctions.

The OPEC + alliance, in which Russia participates, will hold its monthly meeting later on Thursday.

“Strange” shipping practices

Since the start of the Russia-Ukraine war, there have been 180 ship ownership changes from Russian entities to non-Russian ones, according to Windward.

Windwards reported that these changes recorded in just three months were already more than half the ownership changes for Russian ships by 2021.

Many of the Russian ships were sold to companies based mainly in Singapore, Turkey, the United Arab Emirates and Norway, according to Windward.