Since the last update, the US ban on import of oil and other energy sources from Russia is the only notable sanction, in our view. According to experts, the US accounts for less than 10% of Russian energy exports (mainly oil and oil products). In our view, this will not affect materially export of oil and oil products from Russia in the near term. Main exports to the US from Russia are under contracts. The introduced embargo does not affect existing contracts.
The UK supported the US initiative and plans to phase out Russian oil and oil products by the end of this year. According to data for 2021, the volumes of imports of Russian oil and oil products from the UK and the USA accounted to 16 million tons and 33 million tons, respectively. In total, up to 14% of Russian exports of oil and oil products go to the US and the UK. Meanwhile, the US mainly imports oil refined products from Russia rather than the crude oil. In 2021, the share of their Russian imports of oil products was twice the share of the crude oil.
Experts believe that these volumes can be redirected to China and India.
Russian exports of crude oil by country (USD billion)
In addition, the US bans new investment in the Russian energy sector. The US citizens are also prohibited from funding foreign companies that invest in the Russian energy sector.
The EU countries refused to support these measures. However, the EU has presented a plan to gradually reduce dependence on Russian energy carriers until 2030. The main potential measures include:
- Ban on new contracts with Russia
- Purchase of liquefied natural gas (LNG)
- Introducing mandatory minimum limits for filling gas storage facilities.
The EU plans to reduce its imports of Russian gas by 50 billion cubic meters during 2022 (about a third of EU gas exports from Russia). In 2021, the EU imported about 150 billion cubic meters of gas from Russia, which is about 40% of Europe’s gas consumption as a whole.
Currently, Russia exports about 7 million b/d of oil and oil products. Even before the US sanctions on energy export, 2 million b/d of this volume was stuck in pipelines and storages. This is the oil that is not currently sold on the spot market and gets stuck in stocks (for example, in storage facilities in ports) due to sanction fears.
In our opinion, the announced US sanctions will not have a significant impact on the “stuck” volume in the near term, as the US did minor purchases on the spot market. Main exports to the US from Russia are under contracts. The introduced embargo does not affect existing contracts.
Moreover, in the absence of new energy sanctions, especially from the EU, there is a possibility that the volume of unsold oil may even decrease. Potentially, China can increase purchases of Russian oil, and the huge discount at which Russian oil is traded would likely lead to increasing purchasing volumes.
China is considering buying or increasing a stake in Russian energy and raw materials companies. The main goal is to further increase imports as China increases its focus on energy and food security. The Chinese authorities are already negotiating with their state-owned companies about potential investment opportunities in Russian companies or assets.
The Russian government announced another package of supporting measures:
- The Central Bank of Russia (the CBR) allocates additional RUB 500 bn (~USD 4.2 bn) to banks for preferential loans to small businesses
- The government allocates RUB 455 bn (~USD 3.7 bn) for payments to families with children aged 8 to 16
- The CBR reduced the regulatory and supervisory burden on professional participants on the securities markets.
The CBR introduced a limit on the withdrawal of hard currency for people in the amount of USD 10 000. The CBR is also prohibiting citizens from buying dollars and other hard currencies for the next six months.
Authors: Vladimir Tsuprov, CIO, Egor Kiselev, Head of International Business & Investment Marketing, Marina Tsutskiridze, Investment Specialist, Aleksandra Kuznetsova, Investment Specialist