The EU finally reached an agreement - albeit a watered-down one - on banning Russian oil imports. The ban has been a long time coming - and it will be a long time coming still as the ban won't go into full effect until the end of the year.
But that won't stop oil prices from reacting to the ban.
The ban, of course, is designed to punish Putin by choking off Russia's oil revenues. But the West may be shocked to learn that what it has accomplished - at least in the short term - is its own misery in the form of higher crude prices.
Russia, like other major crude oil producers this year, has benefited handsomely from crude oil sales since the huge price spike that began last Fall. For Russia, the timing couldn't have been more perfect. Those oil revenues are helping to fund its war in Ukraine. This unfortunate scenario is precisely what has prompted the EU to try to arrange some monetary punishment by refusing to purchase the international pariah's crude oil. But the ramifications will go well beyond Russia into the very countries that are seeking to choke off Russia's war funds - even into America.
Russia exports nearly 8 million bpd of crude oil and condensate - 2.3 million bpd of which makes its way into the EU. Of that 2.3 million bpd, 1.6 million bpd is shipping to the EU by sea. This is the first type of crude that will be banned. The rest of the crude that makes its way from Russia to the EU is shipped via pipeline, which will not be banned until…
The EU finally reached an agreement - albeit a watered-down one - on banning Russian oil imports. The ban has been a long time coming - and it will be a long time coming still as the ban won't go into full effect until the end of the year.
But that won't stop oil prices from reacting to the ban.
The ban, of course, is designed to punish Putin by choking off Russia's oil revenues. But the West may be shocked to learn that what it has accomplished - at least in the short term - is its own misery in the form of higher crude prices.
Russia, like other major crude oil producers this year, has benefited handsomely from crude oil sales since the huge price spike that began last Fall. For Russia, the timing couldn't have been more perfect. Those oil revenues are helping to fund its war in Ukraine. This unfortunate scenario is precisely what has prompted the EU to try to arrange some monetary punishment by refusing to purchase the international pariah's crude oil. But the ramifications will go well beyond Russia into the very countries that are seeking to choke off Russia's war funds - even into America.
Russia exports nearly 8 million bpd of crude oil and condensate - 2.3 million bpd of which makes its way into the EU. Of that 2.3 million bpd, 1.6 million bpd is shipping to the EU by sea. This is the first type of crude that will be banned. The rest of the crude that makes its way from Russia to the EU is shipped via pipeline, which will not be banned until the end of the year. Some countries in the EU-such as Germany-have said they will start to curb their intake of Russian crude early.
This is both surprising and noteworthy because Germany alone consumes half a million barrels per day of Russian crude. And it's not just the large quantity of crude that will create difficulties for Germany and other crude consumers that have a heavy reliance on Russian crude. The refineries that process this sour Urals will have to source another match if they are to keep running.
Bulgaria also has refineries that were built specifically for running this sour crude.
Countries are already striking deals with alternate suppliers, but the competition is fierce, putting even more upward pressure on global oil prices.
The EU's decision to ban Russian crude will have only one immediate effect - lifting crude oil prices, which will be of great benefit to Russia while it replenishes its war chest. Meanwhile, Russia will have many months to figure out how to get its crude oil - about 2.3 million barrels per day - to other willing buyers that are only too happy to snatch up Urals on the cheap. The buyers who have already shown a willingness to take Russian crude oil include China, India, and Turkey. Russia will not be able to merely flip a switch and export all of its crude to these places. After all, some of these barrels are currently shipped via pipeline. And the EU is looking to make it even harder for Russian seaborne crude shipments to market by banning insurers from insuring Russian crude loads. But surely some of the crude that the EU is refusing to take - in the future - will find alternate homes.
Russia likely won't feel the sting of any of this for many months.
Turkey, India, and China, however, will make out like bandits. They will have the luxury of buying Urals at unbelievably low prices, refining it, then exporting those crude products to other countries (like those in the EU) at unbelievably high prices. The situation for these countries couldn't be more ideal.
That's not to say that Russia won't feel the sting at some point in the future. But the EU's ban of 2.3 million bpd will not strip Russia of 2.3 million bpd - even in the long-term. But what crude oil exports Russia does lose over the course of the next six months will likely not come back - ever - and it will need to shut in this production. But this amount is likely to be far less than the Western world had hoped, and will be largely offset - or more than offset - by higher crude prices as the world scrambles to make up for any real shortfall.
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