Russian oil flows to Asia

The map of global oil flows is being redrawn with the upheaval related to the Western embargo. According to Bloomberg, oil from Russia, Iran and Venezuela is pouring into the largest economies in Asia, especially China and India.

The effectiveness of the embargo

Bloomberg recently cited data from market analysis firm Kpler, saying that more than 30% of the crude oil imported by China and India combined in April came from Russia, Iran and Venezuela. This figure is much higher than the 12% in February 2022, the month when Russia launched a special military operation in Ukraine.

Exports from traditional suppliers are shrinking. Specifically, crude oil imports from India and China from West Africa and the United States have fallen by more than 40% and 35%, respectively.

The figures illustrate that the flow of oil around the world is being reshaped. After Russia invaded Ukraine, Western countries cut off the flow of oil and related products from Russia to their markets, and imposed a price ceiling of $60 per barrel to divert the flow elsewhere. The Western measures were designed to reduce Russia’s income while maintaining the supply of oil to the world market.

Oil tanker off the coast of Ningbo city, Zhejiang province in eastern China

Data from the Paris-based International Energy Agency showed that sanctions against Russia have had the desired effect, as the country's oil exports in March rose to their highest level since the Covid-19 pandemic began, but revenues fell by nearly half compared to March 2022.

The Treasury Department said this month that the price cap had helped maintain Russian oil supplies while cutting Moscow's revenues. "Price caps are a new tool of statecraft. They have helped limit Russia's ability to generate revenue while promoting stability in global energy markets," Treasury Secretary Janet Yellen said.

Sanctions on Russian oil are not working

Who benefits?

“It is clear that Asian customers are the winners of cheap oil,” said Wang Nengquan, a former economist at Sinochem Energy, a Chinese energy company. Over the past few months, Asia, led by India, has become Russia’s largest trading partner, helping Moscow restore its oil exports to normal levels, according to Wang, who has worked in the oil industry for more than three decades.

In a research report published by the Oxford Institute for Energy Studies (UK), researchers said nearly 90% of Russia's oil exports flow to India and China.

Between the two countries, India has been the biggest importer of Russian crude, while China has been buying more Russian oil while maintaining supplies from Iran and Venezuela at large discounts. The crude oil from these two countries has long been embargoed by the US.

Reliance Industries refinery in Gujarat, India

Refiners are said to be the biggest beneficiaries of cheap crude supplies. Data from the Bank of Baroda (India) shows that Russian oil now accounts for nearly 20% of India's annual crude imports, up from just 2% in 2021.

India imported $31 billion worth of crude oil from Russia in the 12 months to March 2023, up from just $2.5 billion a year earlier, Reuters reported, citing government data. Some of the oil is used by India to meet domestic demand and curb inflation, while the rest is refined into diesel and jet fuel for sale to the West. The South Asian country's oil exports to Europe rose 70 percent to $15 billion in the past year. European Union (EU) officials have recently expressed concern about the move, saying it makes sanctions against Russia ineffective.

EU foreign policy chief Josep Borrell has called for measures to stop the trend, including imposing tariffs on private refiners such as Indian billionaire Mukesh Ambani’s Reliance Industries and Nayara Energy, in which Russia’s Rosneft holds a stake. Data from UK-based analytics firm Vortexa shows that Reliance Industries and Nayara accounted for 60% of India’s oil imports from Russia in January.

However, the implementation of the above proposal is considered difficult and requires the consensus of all 27 EU members. Oil refiners often blend crude oil from different sources before processing, making it difficult to determine the origin of each barrel of finished product. Moreover, India also emphasized that products processed from oil from a third country are not subject to EU sanctions. Therefore, to avoid conflict with India, the EU could target European companies buying refined oil from Russia.

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