The World Cannot Afford To Replace Russian Oil

The oil market will find it impossible to replace Russia’s oil, which accounts for 10 percent of global supply, Dmitry Marinchenko, senior director for natural resources and commodities at Fitch, told Russian media on Tuesday.

The escalation of the Russia-Ukraine crisis could send oil prices to above $100 per barrel, according to Fitch’s expert.  

Early on Tuesday, oil prices surged close to $100 a barrel, with Brent Crude hitting a new seven-year high of $99 before easing to $97 per barrel after Russian President Vladimir Putin recognized late on Monday two separatist regions in eastern Ukraine and deployed troops there in the most serious escalation of the crisis yet. 

A further escalation of the conflict could lead to sanctions that would restrict Russian oil exports, which “could lead to an energy crisis,” Kommersant daily quoted Marinchenko as saying.

Currently, the geopolitical premium in the price of oil is already around $15 per barrel due to the Russia-Ukraine crisis, Marinchenko told Russian news agency TASS.

Russia’s share of the global oil market is over 10 percent, and there is no one that can replace it, there is little spare production capacity—especially considering the gradual recovery in demand—even if sanctions on Iran are lifted in the near future, TASS quoted Marinchenko as saying. 

Russia, the world’s second-largest oil exporter after Saudi Arabia, exports around 5 million barrels of crude oil per day (bpd). Nearly half of it, or 48 percent, went to European countries in 2020, according to data from the U.S. Energy Information Administration (EIA). In 2021, Russia remained the largest supplier of natural gas and petroleum oils to the EU.

A plunge in Russian oil exports to Europe would be a very bullish factor for oil prices, which could hit and exceed $100 in case of a conflict in Ukraine, analysts say.  

Also today, Qatari Energy Minister Saad al-Kaabi said that replacing Russian natural gas deliveries to Europe in the short term is “almost impossible.” 

By Tom Kool for Oilprice.com 

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