India’s imports of Russian oil jump fivefold, helping war efforts
Russian fossil fuel exports to China and India have risen significantly since Moscow invaded Ukraine early this year, helping to replenish the Kremlin’s war chest even as shipments to the U.S., Europe and Japan fall sharply. The value of Russia’s energy exports to China increased 17%, or 30 million euros ($29 million), in the July-August period compared with February and March, according to an analysis of data from the Center for Research on Energy and Clean Air, a Finnish think tank. Coal exports jumped 53%, while oil shipments rose 16%. Exports to India increased by a factor of 5.7, or 40 million euros, during the same period, marking the largest increase in the world. Russia was the second-largest supplier of crude for India in June, jumping from 10th place in 2021, according to Indian trade statistics. Russia’s overall daily exports of oil, coal, and natural gas in July and August were down 18% from February and March. Natural gas sent via pipeline sustained the largest decline of 56%, followed by a 34% drop in petroleum products and a 29% fall in coal. Crude oil, on the other hand, increased 19%. Energy is a key industry for Russia, with oil and gas accounting for about 40% of government revenue. To starve Moscow of funds to finance its war in Ukraine, the U.S., Japan and the European Union have imposed a series of sanctions on Russian oil and coal. As a result, Russia’s fossil fuel exports to the EU fell 35%. The U.S. and the U.K. saw plunges of roughly 90%, and Japan a drop of around 70%. The decrease in exports to these countries totals about 250 million euros per day. But the overall decrease in Russia’s energy exports is much smaller, at about 170 million euros because of Moscow’s successful efforts to sell to countries not participating in the sanctions, such as China and India, at a discount. Exports to the Middle East also expanded, with shipments to the United Arab Emirates and Egypt increasing by factors of about nine and three. They are reportedly processing Russian crude oil into petrochemical products for export to the rest of the world. For example, the Port of Fujairah in the UAE is considered a “major hub” for the export of petroleum products mixed with Russian products. As the sanctions on Russian gas and oil take root in Europe and the U.S., Russia’s oil is reaching global customers through third-party processors. The value of exports to Turkey increased about 20%. The country is a NATO member and has criticized the Russian invasion of Ukraine, but it is also cautious about economic sanctions. U.S. Treasury Secretary Janet Yellen revealed in September that Russia is heavily discounting oil for emerging economies, adding that she has confirmed a 30% price reduction to several countries. Indonesian President Joko Widodo did not rule out the possibility of importing Russian oil, telling the Financial Times that “we always monitor all of the options.” Soaring energy prices are also blunting the impact of economic sanctions. According to CREA, Russia earned a total of 158 billion euros from fossil fuel exports in the six months following the invasion of Ukraine. It estimates Russia’s war costs for the same period to be around 100 billion euros. To exact a bigger toll on Russia’s finances, finance ministers from the Group of Seven major economies agreed in September to introduce a price cap on Russian oil imports, starting in December. The arrangement bars insurance companies from insuring marine transportation of oil above the cap. EU member states agreed to the cap on Wednesday. According to the Russian Ministry of Finance, the country had a fiscal surplus of 1.37 trillion rubles ($21.9 billion) in the first half of 2022, but the figure narrowed to 137 billion rubles for the year to August.
U.S. Looks To Punish Saudi Arabia For Large OPEC+ Cut
Despite repeated pleas from the U.S. that the Organization of the Petroleum Exporting Countries (OPEC), under the de facto leadership of Saudi Arabia, should not cut its collective crude oil production at its meeting last week it did just that. The White House had made it clear that a cut in crude oil production and the corollary rise in oil prices would lead to three outcomes that it sees as exceptionally dangerous for the world right now. First, it would add further impetus to the energy price-led surge in global inflation that has prompted rising interest rates around the world that are crimping economic growth. Second, it would significantly boost the state revenues of Russia, as a major exporter of crude oil and gas, enabling its illegal invasion of Ukraine to continue for longer on the back of that funding, costing more lives and increasing the likelihood of escalation into a global nuclear war. And third, it increases the chances that sitting U.S. President Joe Biden will do poorly in the November mid-term elections, making his government less likely to be able to deal effectively with the Russian- and Chinese-led security challenges that the world will face in the remainder of his presidency. Disregarding these entreaties from the U.S., and echoed by the major European states, OPEC, under Saudi Arabia, cut its collective crude oil production by a gigantic two million barrels per day (bpd). Market expectations had been for a possible cut of around one million bpd, with a very remote possibility of one and a half million bpd, if OPEC decided to ignore all its Western allies’ arguments against a reduction. However, the latest cut is the largest crude oil production reduction since the 9.7 million bpd decrease in May 2020 that was implemented expressly to rescue oil prices from the once-in-a-lifetime threat posed to them at the height of the Covid-19 pandemic. This most recent two million bpd cut is set to last for 14 months, until December 2023. The immediate impact on crude oil prices of the cut was not as dramatic as some had feared, but it might yet be very serious indeed, as it coincides with two other market factors, which the Saudis know perfectly well. The first of these is that the long-running program of releasing one million bpd crude oil from the U.S.’s Strategic Petroleum Reserve (SPR) – begun with the specific intention of the White House itself to bring oil prices down in order to dampen down inflationary pressures across the West – are scheduled to end this month. The second of these is that a European Union (EU) ban on seaborne imports of Russian crude is scheduled to go into effect on 5 December, while the G7 group of major industrialised nations is also looking at the mechanics of placing a price cap on Russian energy exports. Aside from knowing the huge upwards pressure that this historically enormous cut in crude oil supply would place on the global oil price, Saudi Arabia was also fully aware of the political ramifications of the cut for the U.S., for Europe, and for Russia, according to several sources in Washington and Brussels exclusively spoken to by OilPrice.com last week. “Senior EU energy security figures conveyed to leading OPEC countries that cutting crude oil production now could be disastrous for several proposed EU energy policies relating to Russian oil and gas sanctions, but these were ignored,” said one senior EU energy source. “The most senior figures in the Saudi government, including [Crown Prince Mohammed bin] Salman, also know exactly what these cuts and continued high energy prices mean for [President Joe] Biden in his mid-term elections,” he added. “The White House sees these OPEC cuts as a direct comment from Saudi Arabia’s highest leadership on what it thinks of the president, of our democratic process, and of our stand with our allies against the Russian invasion of Ukraine,” a senior energy source in Washington said to OilPrice.com last week. As highlighted in all three of my books on the oil sector since 2015, there is a very clear link between oil and gas prices, the U.S. economy, and the chances of re-election as U.S. president. Historical precedent highlights that every US$10 per barrel change in the price of crude oil results in a 25-30 cent change in the price of a gallon of gasoline, although recently this correlation has become even more dramatic. The corollary longstanding rule of thumb is that for every one cent that the U.S.’s average price of gasoline increases, more than US$1 billion per year in discretionary additional consumer spending is lost. It is a matter of historical fact, as shown in my new book on the global oil markets, that since World War I, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two years of an upcoming election. However, presidents who went into a re-election campaign with the economy in recession won only once out of seven times (Calvin Coolidge in 1924, although strictly speaking he had not won the previous election but rather had taken up the position on the death in office of Warren G Harding). The U.S. economy contracted an annualised 0.6 percent quarter-on-quarter (q-o-q) in the second quarter of 2022, confirming the economy technically entered a recession, following a 1.6 percent q-o-q contraction on the first quarter of the year. Ahead of critical mid-term elections in November, President Biden faces not just a recession but also the prospect of severe vote-losing falls in the U.S. stock and housing markets. Saudi Arabia’s core geopolitical alignment away from the U.S. and towards Russia began in earnest at the end of 2016 when the Kremlin stepped in to support the then-beleaguered OPEC at the end of the 2014-2016 Oil Price War. Back in October 2021, the meeting between Russian Deputy Prime Minister, Alexander Novak, and Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, to