Current Affairs

Russia is the third largest oil producer in the world, accounting for 13 percent of world crude oil production (Breugel). The industry was privatised after the collapse of the Soviet Union, but has moved into government control over the past fifteen years. West Siberia and Volga-Ural oil and gas are the main geographical concentration where oil and gas is produced and exported through pipelines and to ports where it is shipped worldwide.

Western countries have sanctioned Russia by restricting imports of its fossil fuels, in response to Russia’s invasion of Ukraine. Countries such as Britain and the United States have completely banned oil imports from Russia, members of the European Union have stopped seaborne oil shipments and in February new sanctions were put in place by the European Union. Before the Russia – Ukraine war, petroleum was the leading import commodity from Russia in the United States, and was valued at $1.4 billion. (BP)

Russian oil producers Rosneft, Gazprom and Lukoil are some of the largest energy companies in the world. Rosneft is the leading producer domestically in Russia, a company that is wholly owned by the Russian government, in 2022 Rosneft purchased the shares of the bankrupted Yukos, which was once the largest producer of oil. The state owned company Transneft operates Russian oil pipelines going through Eurasia and Europe. The Druzhba pipeline carries oil to Europe, and the ESPO pipeline carries oil to China, while remaining crude oil is exported by sea to the EU, China and other countries worldwide.

According to Statista, Russia has proven oil reserves of 107.8 billion barrels, with a daily output of 10.94million barrels, with export value standing at US$110.12 billion. In January 2023, the average price for Urals crude oil, was approximately US$52.2 per barrel. From December 2022, imports via the northern Druzhba pipeline to Poland and Germany have fallen significantly, as these countries are in the process of stopping purchases of Russian crude.

With the prohibition of Russian imports to countries in the EU and G7 alliance, a price cap of US$60 per barrel for Russian crude has been set, Companies in Europe and America have been ordered not to provide services, such as shipping or insurance unless the trade is below the price cap of US$60 per barrel. The functioning of the price cap is dependent on the “volume of crude oil carried or insured by G7 and EU companies.” According to the European research site Breugel, these companies still make up 50 percent of the insurance for ship departures from Russia.

The statistics for 2021 shows that Russia produced 540 million tonnes of crude oil accounting for 13 percent of global production. Two hundred and sixty million tonnes was exported directly as crude oil. Domestically, Russia refined the remaining 290 million tonnes, of which 140 million tonnes was exported as refined products, which made up 11 percent of global refined exports. (Breugel)

The export of oil to China has remained pretty much the same as 2021-2022, it is importing through the ESPO pipeline 2.4 million tonnes per day, but usage from non G7 members has gone from 1.4 million tonnes in 2021 to 10 million tonnes in 2022-2023 per month, meaning Russia’s crude sales have slightly increased. According to the BBC, the price cap has kept Ural prices at the $50 per barrel, which has been driven by the embargo on Russian oil. Furthermore the BBC argue that Russia is losing $175 million per day according to a study by the Centre for Research on Energy and Clean Air, which significantly differs from other research.

But it is measures in banking, which have significantly affected the way that Russia does business. Russia has been removed from the financial service Swift, therefore countries that are continuing to trade with Russia have had to make available a means of payment to continually benefit from the lower prices of Russian oil.

Before 2022, Russia supplied India with 2 percent of their energy needs, this figure is insignificant in comparison to what India is importing today, which is about 1500 barrels per day. According to Charles Kennedy India’s imports of Russian crude hit a record high of 1.2 million barrels per day in December, as discounts in Russian crude were factored in by the price cap set, which made India a significant destination for Russia’s oil, ahead of China, Bloomberg reported.

Russia is now the biggest supplier of oil to India, it has now overtaken Iraq in November. India’s import of Iraq and Saudi oil also increased in December, but the import of Russian oil outpaced Iraqi oil, which rose by 7 percent to 886,000 barrels per day, while Saudi imports jumped by 12 percent to 748,000 barrels per day, according to Vortexa data.

According to Charles Kennedy, even with the price cap, India continues to buy oil that has been discounted and has also been buying some of the Arctic crude varieties, which means that India is taking advantage of some of the cheap Russian cargo, to meet “robust demand”. The Indian government said in an article in Energy World that its three oil marketing companies were not buying crude from Russia and that only private companies were buying, refining and shipping the crude. But Narinda Modi, argued that India would buy from wherever the price is most beneficial to the economy.

According to S&P, the trends that were seen in Asia in 2022, were likely to continue with China and India importing large volumes of crude from Russia. South Korea has cut its intake of Russian crude and Japan is no longer importing from Russia. According to insiders and some government officials, the competition for Russian crude has softened the market for Middle East crude in Asia, which has left enough room for the European market.

Market sources said Middle Eastern crude procurement had been fine due to Indian and Chinese refiners willingness to take more Russian crude, which has helped to meet the demand after the pandemic restrictions. This has worked in favour of the regions overall crude supply security and kept a limit on the prices of Middle East oil.