On Sunday, February 5, the second stage of a partial embargo on imports of energy resources from Russia began to operate in the countries of the European Union.
The leadership of the association approved this measure back in June 2022 as part of the sixth package of sanctions against Moscow.
Now EU states cannot buy Russian oil products transported by sea.
Recall that from December 5, a similar ban was introduced for crude oil from the Russian Federation.
As previously explained by the European authorities, due to restrictions, the EU wants to reduce its energy dependence on Russia and put pressure on Moscow in connection with the events in Ukraine.
It is assumed that the embargo will affect approximately 90% of Russian exports of oil and petroleum products to Europe.
However, there are exceptions for some EU countries.
So, for example, Bulgaria will be able to receive fuel from the Russian Federation by tankers until the end of 2024, and Croatia will be able to buy vacuum gas oil from Moscow until the end of 2023.
In addition, the EU restrictions do not apply to the supply of raw materials through the Druzhba pipeline.
The branches of this trunk system go from Russia through the territories of Belarus and Ukraine in the direction of Germany, Poland, Hungary, the Czech Republic and Slovakia.
It is curious that earlier the German and Polish authorities declared their unwillingness to receive more fuel through Druzhba from 2023.
However, in January, Warsaw continued to buy pipeline raw materials from Moscow, and Berlin agreed to pump Kazakh oil through the pipeline, TASS writes.
© Maxim Bogodvid
Among Western countries, the United States was one of the first to announce a ban on the supply of Russian energy carriers at the beginning of March 2022.
According to the White House at the time, Washington could afford to take such a step thanks to the country's strong energy infrastructure.
Moreover, the share of Russian oil products accounted for only 8% of US imports.
However, some time after the introduction of the embargo, consumers in the United States faced a rush increase in fuel prices and, as a result, a record acceleration of inflation in 41 years.
To combat rising prices, the US authorities had to use their strategic oil reserves, which by now are almost half empty.
Nevertheless, along with the United States, Canada, Australia and Great Britain announced an embargo on the import of hydrocarbons from the Russian Federation, and later the European Union decided to join the sanctions.
However, the EU was not ready for a sharp reduction in purchases, since Russian raw materials provided about 37% of all the region's fuel needs.
Against this background, Europe decided not to abandon pipeline supplies, but to introduce a transitional period of six and eight months, respectively, to ban the transportation of oil and oil products by sea.
Even before the December embargo on oil imports came into force, most EU countries completely abandoned Russian tanker crude, according to the Argus analytical agency.
However, some states of the association, such as Italy and Bulgaria, on the contrary, significantly increased imports in anticipation of the ban.
A similar situation could be observed in the oil products market.
So, shortly before the start of the February restrictions, Europe began to actively buy fuel from Russia.
According to the latest estimates from the International Energy Agency, in December 2022 Moscow increased its diesel exports to a multi-year high of 1.2 million barrels per day.
Moreover, more than half of this volume (720 thousand barrels per day) fell on the share of the EU.
However, the loss of the European market for petroleum products will not lead to serious losses for the Russian budget and the country's economy as a whole.
This point of view was expressed in an interview with RT by Natalya Milchakova, a leading analyst at Freedom Finance Global.
“The Russian budget does not depend so much on the export of petroleum products as it does on the sale of oil and gas.
Of course, the costs of companies may increase, since now they will have to redirect supplies to other countries, but the business for the most part has already managed to prepare for this.
In addition, there is a chance that enterprises will start shipping more fuel to the domestic market, and this should have a positive impact on the cost of fuel in Russia,” Milchakova suggested.
To date, Russian producers have already largely redirected crude oil supplies to the countries of the Asia-Pacific Region (APR), Africa and Latin America.
The export of oil products will be mainly redirected along the same routes, Igor Yushkov, a leading analyst at the National Energy Security Fund, is sure.
“Our oil products will go more to East Asian countries and the Middle East, as well as to India and Egypt.
These states will use the fuel received for their own needs, and the crude oil purchased from us will be processed and sent to Europe and the USA, making good money on this, ”the source explained to RT.
Thus, the European Union will continue to purchase oil products of Russian origin, but through third countries and at an inflated cost.
It is noteworthy that the risks of such a development of events are already recognized in the EU itself.
“As a result of sanctions, Europe is now forced to rely on other, more distant sources such as India, the Middle East and China, which means it can get oil products from much more distant regions and at much higher prices,” TASS quoted the ministry as saying. Hungarian Energy.
The ministry also does not rule out that the European Union will still face a shortage of diesel, since previously almost half of the fuel consumed in the EU was provided by Russian sources.
Against this background, experts from the Hungarian Ministry of Energy consider the Western sanctions policy a failure, since the restrictions imposed against Moscow do not help stop the conflict in Ukraine, but only “impose a heavy burden on countries, businesses and European families.”
© Maxim Bogodvid
As OPEC specialists noted earlier, at the moment there are no free capacities in the world to replace raw materials from the Russian Federation.
Thus, fuel supplies from other sources will allow Europe to only partially replace Russian fuel.
However, the EU may also have problems with this, experts warn.
Three new refineries (in Saudi Arabia, Kuwait and Oman) that could help Europe replace 600,000 bpd of Russian diesel have faced multiple delays in commissioning, according to Bloomberg.
None of the enterprises are yet operating at full capacity, and future prospects remain uncertain.
“In general, the embargo will affect the EU countries differently.
Those who are still allowed to continue to buy raw materials from Russia will not feel any change.
The restriction will be more critical for those who are quite dependent on the import of our oil products.
First of all, it is Finland and the Baltic countries.
This ban will cost them more, and, most likely, inflation in these countries will decline more slowly,” Natalya Milchakova emphasized.
Simultaneously with the ban on tanker transportation, on February 5, the European Union, together with the G7 states (USA, Canada, France, Germany, Italy, Japan and the UK), introduced price restrictions for oil products from Russia.
This measure is provided for by the eighth package of sanctions against Moscow, approved in early October 2022.
As part of the initiative, Western companies are no longer allowed to transport gasoline, diesel and kerosene from Russia by sea to third countries at a price higher than $100 per barrel.
The same ban applies to the transportation of fuel oil and naphtha sold for more than $45 per barrel.
Restrictions have a transitional period of 55 days and will not apply to ships loaded with fuel before February 5 and unloaded at the port of destination before April 1.
In turn, marginal prices are planned to be reviewed if necessary.
“Basically, the same rules will apply to oil products as they did to oil.
That is, restrictions are introduced specifically for transportation, and not for the purchase of fuel, ”explained Igor Yushkov.
Recall that on December 5, 2022, simultaneously with the embargo on supplies, the European Union, together with the G7, introduced a price ceiling for Russian crude oil.
Thus, the West forbade its companies to transport raw materials from the Russian Federation by sea to other regions of the world at a price higher than $60 per barrel.
Note that the idea of a price ceiling also belongs to the United States.
For the first time, the corresponding proposal was announced in May last year by the head of the US Treasury, Janet Yellen.
As the minister explained, the establishment of the marginal cost of raw materials will limit Moscow's excess profits from the sale of hydrocarbons and will have a positive impact on the entire global energy industry.
The Russian authorities initially considered the idea of a price cap ill-considered and repeatedly warned that they would cut off energy supplies to those who joined the restrictions.
As Russian President Vladimir Putin noted, the West today is not in a position to dictate its will to Moscow.
Against this background, the head of state urged the initiators of the sanctions to change their minds, since any attempts to fix the cost of goods will not lead to anything good for the global energy market.
“This is the road towards the destruction of global energy.
There may come a time when the underinvested industry will no longer provide the market with the required volume of products, and then prices will skyrocket and hurt those who are trying to introduce these tools, ”Putin warned.
© Pavel Byrkin
On February 1, an official ban on oil supplies under the price ceiling came into force in Russia.
“In order to protect the national interests of the Russian Federation ... the supply of Russian oil and oil products to foreign legal entities and individuals is prohibited, provided that the contracts for these supplies directly or indirectly provide for the use of a price cap mechanism.
The established ban applies at all stages of deliveries to the final buyer, ”Vladimir Putin’s decree says.
"Exports will not suffer"
According to the US Department of Energy, as a result of the introduced price ceilings and the loss of Western markets in 2023, Moscow will have to reduce energy production by almost 13%, or 1.4 million barrels per day.
However, according to the Russian authorities, the real decline in production will be insignificant and amount to about 5-7%, or 500-700 thousand barrels per day.
“We believe that in the current situation, it is even possible to take the risks of reducing production, rather than be guided by the sale policy regarding the price ceiling.
Today it is $60, tomorrow it can be anything, and becoming dependent on some decisions made by unfriendly countries is unacceptable for us,” Deputy Prime Minister Alexander Novak explained in an interview with Russia 24 TV channel.
© Pavel Bednyakov
At the same time, Russian oil exports will also not suffer serious losses as a result of Western price and trade restrictions.
This conclusion was made by experts of the International Monetary Fund.
“With the current level of the G7 oil price ceiling, Russian crude oil exports are not expected to be significantly affected as Russian trade is diverted from sanctioned countries to states that have not imposed restrictions,” the IMF report says.
At the same time, reconfiguring the export of oil products may turn out to be somewhat more difficult, Igor Yushkov believes.
According to him, today there are fewer tankers for transporting gasoline, diesel and other types of fuel in the world than ships that transport crude oil.
“In other words, the transition period for establishing new logistics routes will take a longer time than the oil supply story.
I think this will take about six months, ”the specialist suggested.
Note that today Moscow provides significant discounts on its oil to attract new buyers.
Thus, according to the latest estimates of the RF Ministry of Finance, in January a barrel of Russian Urals oil was sold cheaper than the ceiling set by the West and cost an average of $49.48.
At the same time, Brent oil was trading near $83 per barrel on the world market.
Against this background, the Ministry of Energy of the Russian Federation announced plans to limit discounts on exported oil.
In turn, Vladimir Putin instructed the authorities to reconsider the method of determining the prices of raw materials for taxing companies.
However, as Alexander Novak believes, as Russia completely reorients itself to new markets, the discount will have to become smaller anyway.
“The cost of freight (oil transportation fees. -
) has grown quite strongly due to the risks that carriers and counterparties experience regarding possible sanctions in accordance with the fact that they do not set a price ceiling.
I hope this situation will be temporary and the discount should decrease over time,” Novak said.
According to him, earlier similar situations have already occurred in the market.
So, for example, in March-April 2022, discounts on Russian oil also increased significantly, but then they began to decline and halved.