Russia, the world’s third biggest oil producer, produces around 11.3 million barrels of oil per day, primarily in Eastern Siberia, the Yamal area, and Tatarstan. While 3.45 million barrels of crude oil and other petroleum products are consumed, the remaining more than 7 million barrels are exported mostly via pipelines and tankers.[1] However, according to the most recent study issued by “Energy Intelligence,” Russia’s total crude oil and processed product exports have declined by roughly 3 million barrels per day and are expected to drop by another 2 million barrels per day in the coming weeks. That is, the country’s oil exports might drop by 5 million barrels per day, bringing the country’s daily exports down to about 2.3 million barrels.[2] That’s approximately a third of what it was before Russia invaded Ukraine, when it produced 7 million barrels per day.
This drop in oil shipments might be an unintended consequence of the sanctions put on Russia as a result of the Ukraine crisis. Although no formal restrictions on Russia’s energy trade have been imposed, sanctioned nations, particularly those in the West, have begun to cut their oil purchases from Russia and seek alternatives. Because 4.8 million barrels out of Moscow’s daily oil exports of 7 million barrels are now flowing to Western countries who support Russia’s sanctions. The remaining 2.2 million barrels are sent to nations that oppose Russian sanctions. To put it another way, Russia has to find new clients for its 4.8 million barrels of oil exports. However, there are two sides to this issue. In other words, Western nations will have to buy 4.8 million barrels of oil from other countries to replace the 4.8 million barrels they bought from Russia. Saudi Arabia, the United Arab Emirates (UAE), Iran, the United States of America (USA), and Venezuela may all expand their oil output and replace Russia’s 4.8 million barrels.
Russia, on the other hand, urges Gulf nations, Iran, and other oil-producing countries to avoid efforts that may create energy market price swings.[3] Saudi Arabia, the United Arab Emirates, and Qatar are avoiding measures against Russia in the energy market due to regional security, military cooperation, and other geopolitical issues. Before the commencement of the Ukraine War, these countries guaranteed Russian President Vladimir Putin that they would follow the OPEC+ standards on oil output and would not politicize the energy market.[4] However, with this assurance, the Gulf nations backed the UN General Assembly’s resolution to condemn Russia’s aggression on Ukraine. Following this stance, Russian Foreign Minister Sergey Lavrov’s diplomatic politeness in welcome his Qatari colleague, Mohammed bin Abdulrahman Al-Thani, in Moscow was a “humiliating” warning message to the Gulf States. Saudi Arabia and the United Arab Emirates, in particular, have the capacity to expand their oil output to 2.5 million barrels per day. However, in order to keep global oil prices high, these countries maintain output low. Gulf States might be an excellent option for Westerners if they limit their oil imports from Russia. As a result, Moscow may step up its pressure on the Gulf states.
Iran has begun to be seen as a competitor in the energy market by Russia. The conclusion of the nuclear agreement with Iran, therefore raising Iran’s oil sales to the international market again, is the point that Moscow is uncomfortable with, while coming to him with (potential) oil sanctions. Iran was able to export 1.3 million barrels of oil per day before to the sanctions. Furthermore, Iran is said to have between 65 and 80 million barrels of oil stored on the seabed in tankers.[5] As a result, if Russia is hit with oil sanctions, Iran will be able to fill the world’s energy gap for a while.
The United States has already begun purchasing Iranian oil. “Buying oil from Iran is on the table,” stated Pete Buttigieg, the US Secretary of Transportation.[6] Moscow, on the other hand, does not want to put sanctions on any commerce between Russia and Iran once the nuclear agreement is signed, and asks that the US commit to this.[7] As the US administration nears a nuclear deal with Iran, Moscow is accused of attempting to sabotage the deal. There is still a chance that the nuclear deal with Iran will be inked as a P4+1 agreement without Russia. If Moscow continues to cause problems in this area, Tehran may no longer want Russia to be a part of the accord. In other words, Russia and Iran now face fresh challenges.
Russia has said that it is willing to sell oil at low rates in order to increase its oil exports, which have declined as a result of the Ukraine Crisis. India wants to take advantage of the low-cost oil opportunity as well. In this connection, it is stated that the New Delhi government is close to reaching an arrangement with Moscow to buy 3.5 million barrels of Russian crude oil at “significant discounts”.[8] India meets 80-85 percent of its oil needs from abroad. However, Russia’s part of this import (2-3%) is fairly little. Now, Russia is attempting to diversify its oil clients, with plans to sell additional oil at low rates to Asian buyers. As a result, it aspires to lessen its energy dependency with the West. To summarize, Russia is prepared to offer India additional oil in order to secure its energy security. White House Press Secretary Jen Psaki stated that the oil that India would purchase from Russia will not violate the sanctions, but that “India should be careful where it stands”.[9]
Russia, like Iran, is concerned about “secondary sanctions” on oil shipments. In other words, foreign countries may be barred from doing business with Russia over oil. This is something that Moscow is thinking about. As a result, just striking new oil deals with Asian buyers would not enough. It must also solve problems with international money transfer systems. In this context, Russia has been creating its own system, SPFS, since 2014, with the goal of avoiding exclusion from SWIFT and expanding its usage. Russia is also exploring for alternative methods to get around secondary restrictions. Payments with China will be made in Ruble-Yuan and via Indian banks that do not do business in the West, for example. Payments with India will be done in Ruble-Rupee and through Indian banks that do not do business in the West. In addition, Russia has the option of paying in gold or barter.
In any event, while there are some possibilities for Russia to avoid impending oil sanctions, it does not appear that sales can be restored to pre-Ukraine Crisis levels. Russia earns 489 billion dollars a year from oil and natural gas sales, with crude oil and other petroleum products accounting for 180 billion dollars.[10] As indicated at the outset of the study, Russia’s oil sales are anticipated to have dropped by 3 million barrels per day. Ending the war in Ukraine is the quickest and easiest way to halt this collapse. If oil sales continue to fall at the current rate, Russia may soon be forced to contemplate this alternative.
[1] “Here’s Where Russian Oil Flows”, Washington Post, https://www.washingtonpost.com/business/2022/03/08/russia-oil-imports-ban/, (Date of Accession: 19.03.2022).
[2] “Russia’s Oil Exports Keep Falling”, Energy Intel, https://www.energyintel.com/0000017f-6590-d580-a37f-f59b521b0000, (Date of Accession: 19.03.2022).
[3] “Balance of power: Gulf states, Russia, and European energy security”, ECFR, https://ecfr.eu/article/balance-of-power-gulf-states-russia-and-european-energy-security/, (Date of Accession: 19.03.2022).
[4] Ibid.
[5] “İran’ın Denizde Depoladığı Petrol Dünya Pazarına Girmeye Hazır”, Tasnim News, https://www.tasnimnews.com/tr/news/2022/02/26/2672660/, (Date of Accession: 19.03.2022).
[6] “ABD Ulaştırma Bakanı’ndan Tepki Çeken Açıklama: ‘İran’dan Petrol Alımı Masada!’”, Milliyet, https://www.milliyet.com.tr/dunya/abd-ulastirma-bakanindan-tepki-ceken-aciklama-irandan-petrol-alimi-masada-6712546, (Date of Accession: 19.03.2022).
[7] “Iran Nuclear Talks on Hold over Last-Minute Russian Demands”, The Guardian, https://www.theguardian.com/world/2022/mar/11/iran-nuclear-talks-on-hold-over-last-minute-russian-demands, (Date of Accession: 19.03.2022).
[8] “India Close to Clinching Oil Deal with Russia”, Times of India, https://timesofindia.indiatimes.com/business/india-business/india-close-to-clinching-oil-deal-with-russia/articleshow/90242777.cms, (Date of Accession: 19.03.2022).
[9] “India not Violating Sanctions on Russia Oil Deal but ‘Think Where You Want to Stand’: US”, CNBC, https://www.cnbctv18.com/india/india-not-violating-sanctions-on-russia-oil-deal-but-think-where-you-want-to-stand-us-12845612.htm, (Date of Accession: 16.03.2022).
[10] “Russia’s Government Can Keep Running Despite NATO Sanctions, Ruble Collapse”, News Week, https://bit.ly/3qjZRKH, (Date of Accession: 16.03.2022).
