While Russia looks to contain the loss of oil revenues as the price of its flagship crude plummeted after Western sanctions took effect, oil shipping firms and Asian refiners are raking in billions of U.S. dollars from transporting and refining Russian crude.
To attract customers in China and India ahead of and after the EU embargo and the G7 price cap, Russian exporters have been offering $15-$20 per barrel discounts, and they are also paying $15-$20 per barrel to shipping companies to transport the crude to Asia, traders in Russian crude have told Reuters.
“Crazy Good” Tanker Business for Russian Crude
The business of transporting Russian crude to Asia has become “crazy good,” a trader dealing with Russian oil told Reuters. Shipping firms are charging much higher rates to ship crude from Russia to refining hubs in Asia than they did a year ago. The profit for an oil shipping firm from a single voyage of a mid-sized tanker with 700,000 barrels of crude on board could be as high as $10 million, according to an invoice Reuters has seen.
Refiners in China and India are also believed to be big beneficiaries of the pivot of Russian trade to Asia as they get cheap crude to process into fuels.
Most of the shipping companies transporting Russian crude – without breaching the sanctions and price cap – are based in the United Arab Emirates (UAE), Greece, India, and China, and some of them are partially owned by Russian firms, according to numerous anonymous banking and trading sources who spoke to Reuters.
“Judging by the customs statistics, some of the benefit was captured by refiners in India and China, but the main beneficiaries must be oil shippers, intermediaries and the Russian oil companies,” Sergey Vakulenko, non-resident fellow at the Carnegie Endowment for International Peace, told Reuters.
Vakulenko, a former executive at Gazprom Neft, quit the Russian oil producer and left Russia days after the invasion of Ukraine.
Russian Budget Hit
While shipping firms and refiners are making “crazy good” money off trade in Russian crude, the Russian budget revenues are sinking with the low prices of Urals. Vladimir Putin seeks to amend the tax legislation to curb the fallout on the state finances, stretched thin to pour more money into the invasion of Ukraine.
The discounts at which Russian oil is being offered has led to the price of Urals to drop to around $30 per barrel below the international benchmark, Brent Crude.
As a result, the revenues for the Russian budget – with oil being the biggest revenue stream – are plunging.
Some of the shipping firms transporting Russian crude are either Russian or partly Russian-owned, or with unclear ownership, which makes the estimates of Russian losses more difficult—there could be indirect income for Russia from the shipment of crude.
The direct impact, however, is known, and it has become worse since the embargo and price cap on Russian crude oil came into effect on December 5.
The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, the Russian Finance Ministry said last week.
The plunge in the price of Urals reduces Russia’s budget revenues from oil export taxes.
Russia’s budget revenues from oil and gas plunged in January by 46% compared to the same month last year. Budget revenues from energy sales – including taxes and customs revenues – plummeted last month to the lowest level since August 2020.
Due to the low price of Urals in January, Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January, compared to a surplus for January 2022, as state revenues from oil and gas plunged by 46.4% due to the low price of Urals and lower natural gas exports, the Russian Finance Ministry said in preliminary estimates this week.
Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources.
In the budget estimate for January this week, the Finance Ministry confirmed parts of this report, saying that “considering the fact that the relevance of the price of Urals in calculating export prices has diminished, various other approaches are currently being studied to switch to alternative price indicators for tax purposes.”
The EU oil ban and price cap are costing Russia an estimated $172 million (160 million euros) per day due to the fall in shipment volumes and prices for Russian oil, Finland-based Centre for Research on Energy and Clean Air (CREA) said in a report last month. The revenue losses were expected to rise to $300 million (280 million euros) per day with the EU sanctions on imports of petroleum products as of February 5, according to CREA.
By Tsvetana Paraskova for Oilprice.com
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