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Six months into Russia’s war on Ukraine, Russia's oil output has continued to exceed expectations although experts are warning that Moscow will find it increasingly difficult to uphold production as Western sanctions begin to bite.
According to the latest report by the International Energy Agency (IEA), Russian oil exports fell by 115 kb/d in July to 7.4 mb/d, from about 8 mb/d at the start of the year. That decline is nowhere near the 2-3 million b/d slump predicted by some experts. The country’s crude and oil product flows to the US, UK, EU, Japan and Korea have slumped by nearly 2.2 mb/d since the outbreak of the war, two-thirds of which have been rerouted to other markets. Export revenues fell from 21 bn in June to $19 bn in July, on both reduced volumes and lower oil prices.
Exports to India have been able to make up for much of the reduced flows to western nations. New reports have emerged that during the second quarter, India slashed its crude imports from the United States by one million metric tonnes while sharply ramping up imports of discounted Russian oil.
India’s energy mix now looks dramatically different from a year ago. Last year, Russian oil in India’s crude basket amounted to a paltry 2.2%, while the U.S. was 9.2%; right now, Russia accounts for nearly 12.9% of India’s crude imports, while the U.S. share has tumbled to just 5.4%.
India has never been a big buyer of Russian crude despite having to import 80% of its needs. In a typical year, India imports just 2-5% of its crude from Russia, roughly the same proportion as the United States did before it announced a 100% ban on Russian energy commodities. Indeed, India imported only 12 million barrels of Russian crude in 2021, with the majority of its oil sourced from Iraq, Saudi Arabia, the United Arab Emirates and Nigeria.
However, the IEA says Russia will find it increasingly difficult to maintain that level of production.
"In the absence of (western) companies, in the absence of the technology providers, in the absence of service companies, it will be much harder for Russia to maintain the production," IEA chief Fatih Birol told Reuters.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.