The trade shift in Russian oil flows is benefitting Moscow’s Middle Eastern allies in the OPEC+ pact as the biggest Arab Gulf oil producers, Saudi Arabia and the United Arab Emirates (UAE), scoop up Russia’s fuels at discounted prices.
With Western markets essentially shut for Russia’s crude and products, new trade routes have emerged, and the countries sitting on some of the largest oil reserves are now importing Russian diesel, naphtha, and fuel oil, according to tanker-tracking and data commodity services.
Saudi Arabia and the UAE, traditional Middle Eastern allies of the United States, are not shying away from importing, storing, trading, or re-exporting Russian fuels despite American efforts to persuade them to join a crackdown on Russian attempts to evade the Western sanctions on its oil.
Russia Begins Exporting Fuel To Top Middle Eastern Oil Producers
Since the Western countries announced they would impose embargoes and price caps on Russia’s crude oil and oil products, the reshuffle of oil trade out of Russia has involved the Middle East as a major importing and trading hub.
In 2022, Russia’s oil exports to the UAE hit a record 60 million barrels, triple compared to the previous year, according to Kpler data cited by The Wall Street Journal. Fujairah, the biggest trading hub in the UAE, is now receiving a lot of Russian oil products, whose volumes are now second only to gas oil from Saudi Arabia, per estimates from Argus Media.
The UAE is also emerging as a hub for trading, insuring, and shipping Russian oil.
Earlier this year, Russia started exporting fuels to Saudi Arabia, the world’s top crude oil exporter and de facto leader of OPEC. Saudi Arabia and Russia are also the leaders of the OPEC and non-OPEC producers in the OPEC+ alliance, which has been coordinating crude oil supply to the market for more than six years now. Related: Gazprom: Europe Will Find It “Very Difficult” To Fill Storage For Next Winter
Kpler estimates that Russia is now sending around 100,000 barrels per day (bpd) of fuels to Saudi Arabia, compared to virtually zero before the Russian invasion of Ukraine, per data quoted by the Journal.
Russia seems to be accelerating its exports of diesel to Saudi Arabia through both direct shipments and ship-to-ship transfers.
Russia started exporting diesel to Saudi Arabia in February after Moscow’s key fuel export outlet, the EU, enacted an embargo on seaborne imports of Russian oil products on February 5, Reuters reported earlier this year, quoting traders and ship-tracking data.
Using STS loadings, Russia is shortening the routes for tankers headed to Africa and Asia after Moscow is now banned from exporting fuels to the EU.
The EU banned—effective February 5—seaborne imports of Russian refined oil products, and around 1 million bpd of Russian diesel, naphtha, and other fuels had to find a home elsewhere if Moscow wanted to continue getting money for those products. The flow of Russian fuels to third countries is also regulated by price caps, similar to the cap on Russian crude if the trade is carried out through Western insurers. The cap on Russian diesel is $100 per barrel, while the cap on lower-cost petroleum products is set at $45 a barrel.
“As Russia’s oil reshuffle continues, some trading patterns are solidifying. India and China have emerged as the top strategic trading partners for Russia, accounting each one-third of total arrivals of Russian oil in March,” Serena Huang, Head of APAC Analysis at Vortexa, wrote last week.
“In considering the alternative markets for Russian oil after the EU ban, we see an interesting distinction of crude, naphtha and fuel oil exports being concentrated among a handful of destination countries in Asia and the Middle East, whilst diesel supplies have headed towards more diverse markets including Saudi Arabia, Turkey, Brazil etc,” Huang added.
Russian diesel exports jumped by 33% in March, with shipments from Russia’s Black Sea ports going to the East and Western Mediterranean regions to countries such as Libya, Egypt, and Tunisia. Exports out of the Baltic Sea ports “have shifted fairly evenly in terms of percentage share to Brazil, Saudi Arabia, Egypt and Morocco,” Vortexa’s Senior Market Analyst Pamela Munger said earlier this month.
U.S. Unsuccessful In Dissuading Saudi Arabia, UAE From Buying Russian Fuel
Russian exports to the Middle East are growing despite efforts from the United States to dissuade Russia’s allies in OPEC+ from supporting trade and purchases of Putin’s oil.
Early this year, Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson traveled to the Middle East and Turkey. In visits to Oman, Abu Dhabi, Dubai, and Turkey, Nelson discussed “Treasury’s efforts to crack down on Russian attempts to evade the international sanctions and export controls imposed for its brutal war against Ukraine, Iran’s destabilizing activity in the region, illicit finance risks undermining economic growth, and foreign investment.”
Yet, the rising Russian fuel exports to Saudi Arabia and the UAE show the waning influence of the United States among its key allies in the Middle East.
By Tsvetana Paraskova for Oilprice.com
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