Western economic analysts are preoccupied with calculating how much fuss they have created by supporting Kyiv. It turned out that the sanctions announced to Russia could hit the wallets of European consumers hard – and they are already hitting. Europe is looking at exploiting every possible loophole in the sanctions they have levied on Russia.
Experts from a bank that is part of the U.S. Federal Reserve System writes that, as the preliminary data show, there has been a disruption in oil supplies from Russia, which may become even more significant in the future. However, according to data from Energy Intelligence, Russia’s oil exports did not decline as much as previously thought, and the fall coincided with the price drop on March 8.
How does Europe cheat?
The Russian Oil, which is still shipped through ports on the Baltic and Black Seas at significant discounts, is not delivered to refineries as it was before. On the contrary, trading houses buy Oil and store it in European countries, from where they can subsequently sell it in circumvention of sanctions. The purchase of Oil for storage is not prohibited under the current sanctions regime.
Oil storage in Europe
In 1968, the European Commission imposed on the Member States of the E.U. to store a quantity of oil corresponding to 65 days of their oil imports. In 1972, in the context of the oil crisis, this threshold was increased to 90 days. In addition, from 2012, all E.U. member countries must publish a monthly report on the state of their stocks.
Member States can hold their emergency oil stocks in their territory or the other E.U. Member States.
As per E.U. official statistics, in June 2021, the E.U. countries held 112.5 million tonnes of emergency oil stocks. The biggest stocks are for crude oil (47.4 million tonnes in the E.U.), followed by gas/diesel oil (40.0 million tonnes) and gasoline (10.0 million tonnes).
Freshly delivered crude Oil may also be stored for some time, not for strategic reasons but simply because it is awaiting refining. Depending on the country, petroleum product storage centres are managed by state bodies, private companies or both.
Europe’s oil storage network
Oil is stored in the Amsterdam-Rotterdam-Antwerp (ARA) hub and several areas of the Mediterranean region. ARA is the most expensive oil storage point for calculating benchmark fuel prices.
How much is E.U. dependent on Russian Oil?
“The E.U. is much more dependent [than U.S., Ed.] on Russian oil, which covers almost 30% of its total import needs,” Carsten Fritsch of Commerzbank writes in a policy note. “For diesel, Russia’s share, in this case, reaches 80%.”
“This means that Europe will need to find other major sources of supply to avoid increasing the supply shortage in the market,” says Fritsch. “At the same time, OPEC + will most likely be addressed with more active calls to accelerate the increase in production.”
Even for Russia, the main oil and oil products supplies go to Europe. Russian exports account for 150 million tons of Oil out of 500 million tons consumed by Europe. In addition, about 80 million tons of oil products are sent to Europe from Russia. But, some European ports currently refuse to accept tankers with Russian Oil, despite the lack of supply.
How much Oil does Russia have?
Russia has 107.2 billion barrels at its disposal and ranks 6th after Iran and Iraq. Deputy Minister of Natural Resources and Ecology, head of Rosnedra Evgeny Kiselev, says that with the current technological development level, the Russian Federation’s energy reserves will be enough for 58 years of oil production and gas reserves for about 60 years.
In addition, Russia has huge untapped reserves. If we consider shale oil and tar sand hydrocarbons, then the approximate reserves of Russian Oil reach 100 billion tons, which is 31.25% of the world’s reserves. The Russian Arctic shelf is estimated to have oil and gas reserves worth up to $20 trillion, which by 2050 could provide 20-30% of the world’s oil production. According to the U.S. Geological Survey, there are 90 billion barrels of oil under the Arctic ice, making up 13% of the world’s undiscovered reserves. Up to 400 billion barrels of hydrocarbons are hidden behind the Arctic Circle.
Why does Europe want to keep loopholes open for Russian Oil?
Due to rising oil prices in Europe and the USA, prices for motor fuel are rising have reached record levels.
To increase the supply of oil on the market, the United States is trying to negotiate the terms of a nuclear deal with Iran to lift its sanctions on Iranian oil exports. But so far, the negotiations have been unsuccessful. If sanctions are lifted, Iran will be able to supply about one million barrels per day to the world market, gradually increasing the supply to 2 million barrels. It will take one to two years. For comparison, Russia currently exports about 4.6 million barrels per day.
The United States and European countries also agreed to unpack their strategic reserves. They want to put 60 million barrels on the market. This measure may hold oil quotes and even lower them for a while, but the impact of this intervention on traders will be only short-term.