Russia Losing Oil Revenue Despite Rerouting Exports

The first couple of months in 2023 have seen India and China importing record amounts of Russian oil. India’s daily average of 1.4 million barrels (bpd) and China’s 1.66 million bpd this month means the two countries taking more than half of Russia’s total daily crude oil exports, which before the invasion of Ukraine averaged around 5 million bpd. A lot of that amount was bought by Europe, but Russia has now found new customers and new traders to ship its oil.

It is thought that at least 20 trading companies are sending Russian oil around the world, replacing big players like Vitol and Trafigura, after the EU and G7 imposed sanctions and price caps on Russian crude and refined oil.

After big traders left Russia, new ones emerge from outside Europe and they are not trading in dollars or euros.

The trades that these companies are conducting with Russian oil and fuels are being financed by banks outside the EU and the G7.

European banks have been left out of the picture because the G7 price cap bans European companies from getting involved in the Russian oil trade unless it is capped at $60 per barrel.

Most of the new traders involved in Russian crude and refined oil are based in Dubai and Hong Kong. Some are concerned that more of these companies will emerge and their names will keep changing to the point when it becomes harder and harder to know who’s behind them.

Much of Russia’s oil and fuels in this new trade environment are being shipped by a so-called shadow fleet of tankers worth some $2.2 billion. This has pushed freight rates higher once again, and some in the industry are beginning to worry about a permanent shortage of vessels to carry other oil and fuels around the world.

According to some estimates, total number of tankers that have been “reserved” to carry Russian oil could be as high as 600, of which 400 crude tankers.

Earlier this month, the International Energy Agency (IEA) reported that both Russia’s oil production and exports have proven surprisingly resilient to Western sanctions. Russian oil output had only fallen by 160,000 bpd from pre-war levels and exports were down by 400,000 bpd—a decline partially offset by higher exports to China and India. Despite that resilience, the IEA also say that the price cap mechanism is working because Russia is making less money from its oil.

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