Lost Russian Oil Revenue is Bonanza For Shippers
In recent years, Western sanctions have significantly impacted the oil industry in Russia. The sanctions, implemented by the European Union and the United States, were designed to reduce the revenues of what they consider to be the “war machine” of Russian President Vladimir Putin.
However, these sanctions have not only reduced state oil revenues but have also diverted tens of billions of dollars toward shipping and refining firms, some of which have connections to Russia. In this article, we will explore the effects of these sanctions on Russia’s oil industry and the entities that have benefited from them.
According to at least 20 trading and banking sources, most of the beneficiaries of the sanctions are based in China, India, Greece, and the United Arab Emirates. A handful of these firms are partly owned by Russian companies. Despite benefiting from the sanctions, none of these firms are in breach of the sanctions.
As the Ukraine conflict entered its second year, Russia’s income from oil exports had dropped, but the volume of exports remained relatively stable despite the sanctions. Putin had warned the West that the sanctions would trigger an energy price rally, but instead, international benchmark Brent oil prices have fallen to $80 per barrel from a near-all-time high of $139 in March 2022, just weeks after the start of the war.
After the Group of Seven (G7) industrial nations imposed a price cap on Russian oil in December, Russia’s finance ministry reported that Moscow’s oil export revenues fell by 40% YoY in January. This low official oil price meant that the Russian state budget has suffered in recent weeks.
The sanctions on Russia include outright bans on purchases of Russian energy by the United States and the EU and bans on the shipping of Russian crude anywhere in the world unless it is sold at or below $60 per barrel.
As a result, Russia has diverted most of its crude and refined products to Asia by offering steep discounts to buyers in China and India compared to competing grades from the Middle East. The ban on shipping and the price cap have made buyers wary and forced Russia to pay for transportation of crude as it does not have enough tankers to carry all of its exports.
In late January, Russian oil firms were offering discounts of $15-$20 per barrel for crude to buyers in India and China, and they also paid $15-$20 per barrel to shipping companies to take crude from Russia to China or India. As a result, Russian companies received only $49.48 per barrel of Urals at Russian ports in January, down 42% YoY and just 60% of the European Brent benchmark price, according to the Russian Finance Ministry.
The Western sanctions on Russia have significantly impacted the country’s oil industry, reducing state oil revenues and diverting billions of dollars towards shipping and refining firms in China, India, Greece, and the United Arab Emirates. Although none of these firms are in breach of the sanctions, they have benefited from the measures implemented by the European Union and the United States.
Despite Putin’s warnings of an energy price rally, international benchmark Brent oil prices have fallen, and Russia’s income from oil exports has dropped. The ban on shipping and the price cap have also forced Russia to pay for transportation of crude and receive lower prices for its exports.
