analysis | How Russian are you? : very crude question

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Sunday is the day the European Union rules that ban transactions with Russian state-owned energy companies come into effect. This will further reduce the amount of crude oil and refined products purchased and traded by European companies, but will not stop the flow.

Even if the EU finally imposes sanctions on the country’s purchase of oil, it will not stop “Russian” crude oil and products made from it leaving Russian ports to fuel European cars and trucks.

There are several reasons.

Russia will do everything it can to keep shipments moving. Crude oil will continue to flow into China and India and will increase in volume. Shipping by sea will increasingly depend on Russian ships. State-owned Sovcomflot PJSC operates more than 100 tankers, ranging from so-called medium-sized vessels capable of transporting 40,000 tonnes of refined products to local markets to the largest crude carriers capable of carrying eight ships. as great a distance.

Vessels used in Russia’s foreign trade have been largely shunned after Britain added Sovcomflot to its sanctions list, causing international insurers to distance themselves from shipowners. The company’s largest vessel, the 340,000-ton super tanker Svet, has not shipped cargo since it delivered Angola crude oil cargo to China in February.

Insurance for Sovcomflot ships to India will normally be provided by the Russian state, not by the mutual insurance associations or P&I clubs that perform their role.

However, trade from western Russia to Asian markets has surged after the invasion of Ukraine and is likely to grow further. Cargo is also starting to drain out of Fujairah, United Arab Emirates, where crude oil can be refined, stored, blended and resold.

There will also be exemptions for crude oil, mostly from Kazakhstan passing through Russia, but in much smaller quantities from Azerbaijan and Turkmenistan. I’ve covered the case of CPC Blend crude from Kazakhstan here, but traders can still lift what they see to outsiders, like the Russian Urals or Siberian light crudes. It’s not about avoiding sanctions.

Most of the molecules in these cargoes were pumped from Russian lands, but their legal origins are elsewhere. Kazakhstan, for example, pumps crude oil into a Russian pipeline system. This crude oil is blended with quantities from Russian oil fields to create standardized export grades REBCO (Urals) and Siberian Light. Kazakhstan is allocated the same amount of crude oil that is put into the system for loading on tankers in Russian ports.

Despite being a financial transaction between the buyer and Kazakhstan, the cargo appears to be Russian. Branded with Russian grade and shipped from Russian ports. This could pose all kinds of reputational risks to companies like Vitol Group, which handle Kazakhstan’s Ural exports.

Europe could stop buying Russian crude, but it won’t be able to avoid diesel fuel made from it. Direct diesel trade between Russia and European countries could be halted, but Russian crude from overseas refineries will still arrive in European ports. Russian crude oil processed at overseas refineries is no longer Russian. For example, diesel produced by a refinery in India is Indian diesel, whether the crude oil comes from Saudi Arabia, Russia or elsewhere. Products are made to the strict specifications required by the countries of consumption and there is no mechanism to ascertain where the crude oil produced comes from.

The purpose of the EU measures already imposed, and the proposed sanctions that member states are trying to adopt, do not stop oil itself from coming out of Russia. It is to block, or at least significantly reduce, the income that Russia earns from its oil exports. At the same time, the world continues to need at least some of that oil to keep us from another price spike.

About this author and more from Bloomberg Opinion:

• The weakness of Russia’s fortified economy: Clara Pereira Marques and Scott Johnson

European ban on Russian oil should be realistic: Julian Lee

Sorry, but unfortunately, oil trades at $250 a barrel: Javier Blas

This column does not necessarily reflect the views of the editorial board or Bloomberg LP or its owners.

Julian Lee is an oil strategist at Bloomberg First Word. Previously, he was a Senior Analyst at the Center for Global Energy Studies.

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