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Why Moscow will struggle to circumvent the EU oil embargo

Why Moscow will struggle to circumvent the EU oil embargo

Not a drop (or almost). By the end of the year, nearly 90% of Russian oil imports into the EU will be banned, subject to sanctions decided by the 27. A decision which would not, however, be so bad for the regime in place in Moscow, according to some Internet users, who argue that Russia would benefit from the current price increase and could find other markets to sell its petroleum products. This is also the argument that Marine Le Pen used in part at the microphone of France Info on June 7: “Russian oil will be sold to others”, she said. spear.


Does this mean that the announcement of the embargo would have done the business of Russian exporters? Julien Vercueil, professor of economics at Inalco (National Institute of Oriental Languages ​​and Civilizations), notes that “after adverse years in 2020 and 2021, the Russian oil sector benefited from exceptional price conditions in the first half of 2022, which largely compensated for the drop in quantities sold. The researcher, a specialist in the Russian economy, notes, however, that Russia “has no direct influence” on the price, “which depends on global market conditions”.

These conditions would also have been favored by “the $20 to $30 discount to the barrel of Russian oil, which represents a strong incentive for buyers”, advance in a note from IFPEN, a public energy research body. This discount “explains the stability of Russian sales until April despite the American embargo and the drop in sales to the EU”.

“The EU accounts for just over half of Russian oil exports”

Moreover, if, “since the start of the war, the rise in crude oil prices has been a trend”, prices could however evolve rapidly downwards if two factors intervene, notes Julien Vercueil: “The first would be a policy of OPEC aiming to significantly increase production – a first movement, still timid, in this direction was made at the beginning of June. The second is the drop in demand for oil due to the global economic slowdown. The combination of these two trends is not yet observed.

Despite this current rise in oil prices, the loss of this market from the EU market is not good news for the Russian oil industry. The researcher even qualifies this loss as “critical for Russian exporters”. “The EU represents a little more than half of Russian oil and oil product exports,” he recalls. Petroleum and petroleum products are also heavyweights in the Russian economy, having last year accounted for “about 43% of Russia’s total export earnings”.

India and China, new outlets?

Russia could turn to other markets, such as India and China. These two countries have “the double advantage of being two big oil consumers and of not having condemned the war of invasion of Ukraine”, details Julien Vercueil. However, will this be enough to “absorb” all the oil that was previously destined for the 27? This is not guaranteed, adds the researcher: “India and China will only be able to substitute Russian oil for the oil they usually buy from other suppliers as long as it remains within the limits they consider as economically and geopolitically acceptable. It is more generally towards the whole of Asia, including Southeast Asia, that Russia will have to turn to sell its oil, with the same uncertainty as for India and China. »

Another difficulty for the Russian exporters, they lose with this embargo the possibility of transporting part of the oil by pipeline. Exports should therefore shift, at least in part, to ports and ships. “This postponement may stumble, if not on bottlenecks, at least on additional costs linked to these new modes of transport. »

“We can be certain today that these sanctions will be costly for Russian exporters”

To respond to the sanctions, some players in the Russian oil industry could imagine “bypassing the sanctions”, notes the researcher. A risky strategy, in particular because of the controls.

Search for new markets, circumvention of sanctions, whatever the Russian responses to this embargo, and even “if it is difficult to [les] quantify in advance, we can be certain today that these sanctions will be costly for Russian exporters and will reduce, all other things being equal, the foreign exchange earnings and tax revenues of the Russian State. »

Russia wants to develop its liquid gas exports

These revenues could also be impacted if the 27 were to decide on an embargo on the import of Russian gas. If the subject is far from unanimous among Europeans, Saturday, Thierry Breton, the European commissioner for the internal market, said “prepare” for such an eventuality. Europe is even more dependent on Russia for this market than for oil, recalls Julien Vercueil: “In 2021, 45% of EU gas imports and 40% of gas consumption came from Russia. »

Here again, Russia is developing strategies to ward off possible battering by the 27, in particular by “seeking to develop its exports of liquid natural gas. These exports go through ports and not through gas pipelines. However, the development of the infrastructures necessary for this trade “is costly and will take time”, concludes Julien Vercueil.

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