A surge in Asian demand for discounted Russian oil is offsetting sharply lower barrels sold to Europe, dampening the effects of the West’s attempts to punish Moscow for invading Ukraine and driving revenue to the Kremlin keep flowing.
Most of the extra oil has gone to two countries: China and India. China’s imports of Russian oil rose 28 percent in May from the previous month, reaching an all-time high and helping Russia overtake Saudi Arabia as China’s largest supplier. And most of the increase went to India, which has gone from almost no Russian oil to more than 760,000 barrels a day, according to shipping data analyzed by Kpler, a market research firm.
Although South Korea and Japan have cut Russian oil, those volumes are only a fraction of what China and India are buying.
“Asia has saved Russian crude oil production,” said Kpler analyst Viktor Katona. “Russia, instead of falling further, is almost close to its prepandemic levels.”
Russian oil is being sold at a steep discount because of the risks associated with sanctions imposed to punish Russia for its invasion of Ukraine. Still, rising energy prices have boosted oil revenues for Russia, which brought in $1.7 billion more last month than in April, according to the International Energy Agency.
While it remains to be seen how far Asia will continue to buy oil as Europe moves away from Russian energy, the shift has allowed Moscow to maintain production levels and defy analyst expectations that its production would decline. And it has provided another indication of the support Russia enjoys from China, whose top leader, Xi Jinping, has offered to deepen cooperation with Moscow despite its invasion of Ukraine.
According to Kpler, seaborne exports of Russian crude oil to Asia have doubled from about one million barrels a day before the Russian invasion of Ukraine to about two million a day.
The combination of discounted Russian crude and higher prices at the pump also means Indian refineries are benefiting twice, according to analysts. According to the Finland-based organization Center for Research on Energy and Clean Air, some of India’s re-exported oil products went in shipments to the United States, Britain, France and Italy.
“Those molecules, a lot of them are Russian,” Jeff Brown, the president of FGE, an energy consultancy, said of the refined oil being re-exported to the West. “That’s the crux of the tension – they want to punish Russia, but they don’t want oil prices to rise.”
The mounting threat of inflation has made Russian oil a tempting prospect for other countries. South Africa’s energy minister told Bloomberg that his country is considering buying Russian oil to counter steep fuel prices. Sri Lanka’s prime minister told The Associated Press that his country may have no choice but to turn to Russia. And Russia’s ambassador to the Philippines said at a news conference that he was meeting President-elect Ferdinand Marcos Jr. had said that Moscow could help the country with oil, gas and other energy sources.
But even though Europe’s full embargo on Russian oil won’t take effect until late 2022, the continent is still looking for other ways to punish Moscow for the war.
“We must not forget that Europe wants to take further action,” said Mr Brown of FGE. “Russia will find ways to get around restrictions, but the restrictions will get tougher.”
