Russia’s oil revenue plunges as EU oil war enters second round – POLITICO

The EU’s energy war with Russia has entered a new phase – and there are signs the Kremlin is starting to feel the pain.

As of Sunday, it is illegal to import petroleum products – those refined from crude oil, such as diesel, gasoline and naphtha – from Russia into the EU. This follows the EU’s December embargo on Russian maritime crude oil.

Both measures are also tied to price caps imposed by the G7 club of wealthy democracies aimed at lowering the price Russia gets for its oil and refined products without disrupting global energy markets.

These actions appear to have eaten into the Kremlin’s budget in a way that other economic sanctions imposed in retaliation for Russia’s invasion of Ukraine have not.

The Kremlin’s tax revenue from oil and gas in January was among its lowest monthly totals since the depths of COVID in 2020, according to Janis Kluge, senior associate at the German Institute for International and Security Affairs.

Kluge noted that while Russia’s 2023 budget forecasts 9 trillion rubles ($120 billion) in fossil fuel revenue, in January it only earned 425 billion rubles from oil taxes. and gas, about half compared to the same month last year.

It’s just a month’s numbers and revenue fluctuates, but Kluge called it a “bad start.”

Russia’s gas sales to Europe have also collapsed – in part due to Moscow’s energy blackmail – its share of imports falling from around 40% throughout 2021 to 13% in November 2022, according to the latest confirmed monthly figure from the European Commission.

But it is oil that counts most in the Kremlin’s coffers.

On Friday, EU countries reached an agreement on two price caps which will come into full effect later this year after a 55-day transition period. A cap of $100 will apply to “premium” petroleum products, including diesel, gasoline and kerosene. A cap of $45 will be imposed on “discount” products, such as heating oil, naphtha and fuel oil.

The EU ban and the G7 price caps are meant to work in tandem. As the EU bans Russian oil, cutting off a vital market, the price cap ensures that insurance and transport companies based in the EU and other G7 countries are not completely blocked from facilitating the world trade in Russian oil. They still can, but it must be under price caps. That way, the theory goes, Russia’s fossil fuel revenues will be hit without disrupting the global oil market in a way that could endanger supply and drive up the price for everyone else.

Squeeze the Kremlin

So far, European leaders think it is working.

Buyers in China, India and other countries are sucking up more Russian crude, making up for lost trade with Europe. But knowing that Russia has few alternative markets, buyers were able to drive the price down. “The discounts that Russia must give, that its partners can demand, are strong and here to stay,” said a senior European Commission official. Russian Urals crude is trading at around $50 a barrel, about $30 below the benchmark Brent crude price.

“I think in general the EU and the G7 can be quite happy with how things have gone on the oil embargo and the price cap so far,” Kluge said. “There has been no turmoil in the global oil markets and at the same time, Russia’s revenues have fallen significantly. The main reason here is that the price Russia receives for its crude has fallen.

The question is whether the EU can maintain economic pressure on Russia without hurting itself in the process.

So far, at least as far as oil is concerned, everything has gone well. Oil markets have proved remarkably flexible since the EU crude embargo in December, with export flows simply shifting: Asia is now buying more Russian crude – often at a discount – while other producers in the Middle East and the United States intervene to supply Europe.

So far, it seems likely that a similar “reshuffle” in global trade will take place with petroleum products like diesel, said Claudio Galimberti, senior vice president of analysis at Rystad Energy.

The nature of the sanctions on petroleum products means that nothing prevents Russian crude from being exported to a third country, refined and then re-exported to the EU, which means that India and other countries become suppliers more important oil products for the West. .

China and India, along with others in the Middle East and North Africa, also appear likely to grab Russian oil products that no longer enter Europe directly, freeing up their own refining capacity for produce even more products that they can sell in Europe. Europe and elsewhere.

“There is a product reshuffle the same way there was a rough reshuffle,” Galimberti said.

However, there could still be problems. “Europe will not import Russian diesel, so it has to come from elsewhere,” Galimberti said, pointing to two major Middle Eastern refineries – Al-Zour in Kuwait and Jazan in Saudi Arabia – on which the European supply will henceforth be more and more. addicted.

“If you had a problem at one of these refineries, you might see a price response in Europe,” Galimberti said. But for now, after a glut of imports ahead of Sunday’s ban, “distillate stocks are full”, he added.

“Europe is doing well.”