After nearly three months of talks and negotiations amid the ongoing war in Ukraine, European Union members have agreed to gradually impose a ban on Russian oil exports destined for Europe. Pipes from blocking.

About 65% of Russia's oil exports reach Europe by sea tankers, while the rest of the exports flow through the Druzhba pipeline.

Russia preempted European embargo decisions from the first day of the war, and was able to transfer the majority of oil exports that Europe avoided to Asian markets, and was helped in this step by the fact that global oil markets are characterized by flexibility and ease of shipping from one location to another, unlike the liquefied gas markets, which contributed to the splitting of oil. Russia easily finds its way to places other than European markets

At the same time, the European Union granted a temporary exception from the embargo to countries that depend heavily on Russian oil and cannot provide alternatives in the near term, and the exception includes Hungary, the Czech Republic and Slovakia, so that the three countries continue to receive Russian oil through the Druzhba pipeline, while Germany pledged And Poland to stop buying Russian crude from the Druzhba line by the end of this year.

Accordingly, the gradual embargo is supposed to enable Europe to dispense with 65% of Russian oil imports in the coming months, and this percentage will rise by the end of 2022 to about 90%.

Since the beginning of the Russian invasion of Ukraine, there has been a growing momentum and an ongoing discussion about the European Union’s ability to embargo Russian oil, the expected losses within Europe, and the repercussions on global oil markets. When, now that the European Union has agreed to the Russian oil embargo, it appears that the decision's main objective is to block Russian oil exports and prevent Moscow from collecting the revenues from the huge oil exports that fuel the Russian war machine in Ukraine;

It needs more substantive discussion to make sure that Washington and Europe achieve the goal of the embargo without having significant consequences for the European and global economy.

Russian oil and a smooth road to Asian markets

In 2021, Russia exported about 3.1 million barrels per day of crude oil to Europe, in addition to 1.3 million barrels per day of petroleum products, and Russian exports constitute about 30% of the total crude oil exports to Europe, and these quantities provide about 18% of Europe's needs from oil.

While Russia's average daily production of crude oil and petroleum products is about 10 million barrels;

This means that Europe alone buys about half of Russia's oil production. In other words, the oil revenues that Russia obtained from Europe during 2021 are about $90 billion ($250 million per day).

Russia preempted European embargo decisions from the first day of the war. Moscow was able to transfer the majority of oil exports that Europe avoided to Asian markets, and was helped in this step by the fact that global oil markets are characterized by flexibility and ease of shipping from one location to another unlike the liquefied gas markets;

This contributed to the fact that Russian oil finds its way easily to places other than European markets.

Moreover, the significant reductions provided by Moscow to facilitate sales of its oil exports to non-European countries contributed to finding new outlets, as the difference between Russian oil and Brent crude amounted to more than $30 per barrel, meaning that the Russian reductions amounted to between 25% and 30% of prices. world oil in the months after the war.

While it was very rare for India to receive Russian oil exports, India's imports jumped from zero last February to about 627,000 barrels per day of Russian oil in the previous April.

China's imports of Russian oil rose from 700,000 barrels per day last February to nearly one million barrels per day now.

The increase in Russian oil exports to both China and India was reflected in the revenues that Russia achieved in the first four months of this year, and the interesting paradox here is that Russia achieved profits that exceeded its profits in the same period last year by about 50%, and it is expected if Russia continues in this way Among the exports, its revenues from oil and gas exports together in 2022 amount to about 320 billion dollars, while its revenues in 2021 amounted to about 235 billion dollars.

The expected imbalance in the balance of supply and demand will lead to a rise in international oil prices, and weaken the prospects for a decline in prices in the near term

These numbers indicate two remarkable things: Russia's seaborne oil export flows have remained largely stable after diverting from some of the major importers in European markets during the wartime period.

At the same time, it was clear that Asian markets had the capacity to absorb large volumes of Russian oil that was destined for Europe.

The main challenge facing Russia is the extent to which major oil suppliers to Asia, led by Saudi Arabia, accept not to compete with low-priced Russian oil, which is more likely, as the Kingdom and the rest of the Gulf countries are expected to exchange roles with Russia and head towards European markets to compensate for Russian oil. Due to Saudi Arabia's desire to maintain its strong relationship with Moscow, and then to maintain "OPEC+" as a cohesive alliance capable of controlling global oil prices.

The equation of supply and demand is always in Russia's favor

Since the oil markets are currently experiencing fluctuations due to the conditions caused by the Russian-Ukrainian war, the reduction of production in small quantities from one of the largest international oil producers will lead to the oil markets being exposed to a shortage in supply, as some estimates indicate the loss of one million barrels of oil per day from Russian production due to the European embargo decision.

On the other hand, the general closure imposed by Beijing on the city of Shanghai during the months of last April and May, has reduced Chinese demand for oil, which has curbed the rise in oil prices to a large extent.

But with China announcing the end of the closure at the beginning of this month, Beijing's demand for oil is likely to increase by 4% year on year, adding an increase of 600,000 barrels of oil per day to its exports in the second half of 2022.

Therefore, the expected imbalance in the balance of supply and demand will lead to a rise in international oil prices, and weaken the prospects for a decline in prices in the near term.

The existing supply and demand equation leads us to the fact that despite the expected slight decline in Russian exports and its sale of oil at low prices;

Nevertheless, Moscow will benefit from the rise in oil prices to the extent that it achieves revenues close to those planned before the start of the war.

Based on the foregoing, the European decision to ban Russian oil, which seemed to be too late, will not be able to paralyze Russia financially or cause significant losses to its oil export revenues, as Moscow will easily be able to find other alternative export paths in the short and medium term, in addition to Preserving its revenues from oil exports in light of high prices, which will make the European embargo limited in its impact.

More importantly, just as the Russian oil embargo demonstrated the success of the European Union countries in reaching a political agreement;

It also revealed the extent of the difficulties faced by the West to punish Russia for the war.