EU Russian Oil Snub Appears to Be Gathering Momentum
Producers of Russian crude are finding it increasingly difficult to sell barrels in their traditional European market since President Vladimir Putin launched an assault on Ukraine.
While the European Union has failed so far to impose a ban on oil imports from Russia, that hasn’t stopped the bloc’s refiners from shunning seaborne deliveries of crude from its key Baltic Sea export terminals. That shift seems to have gotten more pronounced since May 15, when tougher EU sanctions on the banking sector came into effect.
The extent to which Europe avoids Russian oil is critical to the global market. The continent’s refineries have been forced to pile into the market for premium crudes instead, driving up prices.
Cargoes shipped from Primorsk and Ust-Luga, Russia’s two main Baltic Sea oil ports, are being forced to take much longer voyages to refineries in Asia and to just a handful of buyers in the Mediterranean. Deliveries to the more usual destinations in the Netherlands and France have all but halted.
The switch began in earnest in mid-March, after European buyers and shippers began to avoid Russian barrels. The tougher EU sanctions that came into effect on May 15 have made it even harder to ship barrels to European countries.
“EU sanctions prohibit a whole number of things from May 15,” Mike Muller, head of Asia at Vitol Group, the world’s largest independent oil trader, said a week before the deadline on a podcast produced by Dubai-based Gulf Intelligence. The international banking system “just cannot make payments to Russian entities work,” he said.
Before the invasion, northwest Europe took more than 70% of all Urals crude cargoes shipped from the Baltic. That slipped below 40% in the aftermath of the invasion. While it is tricky to make a definitive judgment on just a few days of shipments, flows to northern European countries have so far fallen further since May 15, to just 20% of the total. Standard Baltic Sea cargoes are 100,000 tons a piece.
The abundance of shipments to the Mediterranean is misleading. Shipments to the region from Primorsk have by and large been ending up either in Turkey, or at a refinery owned by Russian oil company Lukoil PJSC on the Italian island of Sicily. Only three cargoes loaded at Primorsk since the invasion have been delivered elsewhere in the Mediterranean.
Self-sanctions and other measures taken against Russia in the wake of the Ukraine invasion may be having only a modest impact on overall crude export volumes, but they are increasingly forcing exports from the country’s western ports on much longer, and more costly, voyages to other regions.
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