![]() This would be a massive disruption during normal times. That puts roughly 5 percent of global oil supply at risk of impairment. But now, escalating tensions threaten to directly impair the entire 4.8 million bbl/d of export volumes. Russia quickly responded with the prospect of banning Russian commodity exports in response to Western sanctions.Īlready, a substantial portion of the 4.8 million bbl/d of Russian oil exports to Western economies is disrupted from sanctions and popular pressure. The United Kingdom followed up with a similar ban on imports of Russian crude oil. The situation escalated further when the Biden administration took direct aim at Russian energy, announcing a ban on Russian oil imports to the United States. The backlash was enough to spark a public apology from Shell, along with a commitment to “stop all spot purchases of Russian crude oil.” Case in point - oil supermajor Shell purchased 100,000 barrels of Russian crude at a record discount. Meanwhile, even if Western companies are willing to take the legal/financial risk of buying Russian crude, they now face huge reputational risk. As one trader at a major commodities broker explained: “The market is starting to fail.” Even if the transactions aren’t technically illegal, these players simply don’t want the risk or headache involved. Meanwhile, we’re hearing similar reports of refiners, insurance providers and other key cogs in the physical market stepping away from dealing in Russian oil. Without this critical source of financing, traders can’t buy Russian crude and deliver it into the global market. ![]() But as the The Wall Street Journal reported, the “banks that grease the wheels of international commerce are refusing to finance Russian commodity deals.” Even where Russian crude is still technically legal to trade, the sanctions package has gummed up the inner workings of transactions on the ground.Īs one example, physical oil traders often use letters of bank credit to finance the purchase of crude oil cargoes. Physical oil trading is a complex business that involves multiple layers of transactions and counterparties. So, despite these intentions, the Russian oil trade got caught in the crossfire as collateral damage. ![]() The problem is, scope of the financial sanctions leveled against Russia were the most sweeping of any kind ever implemented. That’s why the politicians initially avoided direct sanctions on Russian energy in the wake of the Ukrainian invasion. Of course, Western leaders appreciated the critical nature of Russian exports in balancing the global oil market. Outside of coordinated OPEC actions (which typically occur in bear markets), the world has never suffered a supply disruption of this magnitude before. While we can likely count on China and Eastern Europe to continue buying Russian oil, that still leaves a massive 4.8 million bbl/d of exports at risk from the escalating tensions between Russia and the West. Meanwhile, another 2.3 million bbl/d goes to countries not backing sanctions - primarily China, along with several Eastern European countries. This primarily includes western European countries that are part of the European Union, plus the United States and a few others. (The term “oil” will refer to both crude and refined products in this article.) That makes Russia the world’s single largest oil exporter.īefore the Russian invasion of Ukraine, 4.8 million bbl/d of Russian oil exports went to countries that are now backing sanctions against Russia. The country consumes about 3.5 million of those barrels domestically, while exporting more than 7 million bbl/d of crude oil and refined products. Russia is the world’s third-largest oil producer, with output of 11.3 million barrels per day (bbl/d). Let’s consider the scope of potential disruption in Russian oil supplies. American energy will become more important than ever in the months and years ahead. producers to invest in more oil and gas production. Recent events have shocked the world into a newfound appreciation of low-cost oil and gas, sourced from good actors. Even before the Ukraine conflict, the world was running short of oil – evidenced by prices rallying above $90 per barrel at the start of this year. Now, the market risks losing millions of barrels of Russian exports at the worst possible time. While the geopolitical situation is complex, the market impact distills down to basic supply and demand. Vladimir Putin threw a spark into the powder keg of the global oil market. The Russian invasion of Ukraine has sent oil prices soaring above $100 per barrel, and we could see even more explosive gains ahead.
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