Explainer: When EU embargo comes, where will Russia sell its crude oil?

Models of oil barrels can be seen in front of the featured “stop” sign, the colors of the EU and Russia flag in this image, taken March 8, 2022. REUTERS/Dado Ruvic/Illustration

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MOSCOW, Sept. 23 (Reuters) – Russia has ramped up oil shipments to Asia since Europe imposed sweeping sanctions, but still has to send more than a quarter of its crude exports away from Europe – or about 1.3 million barrels a day – when a the full oil embargo hits in December. Russia exports about 20 million tons of crude oil per month — about five million barrels per day (bpd) — through various routes, including the Druzhba pipeline to Europe and others to Asia.

In August, Russia’s total exports through European ports and the Druzhba pipeline totaled 12.05 million tons, of which about 5.5 million tons (1.3 million bpd) were shipped to countries that will stop importing Russian imports from December 5. oil.

Russia must find new buyers for that crude, which may require cheap prices and special conditions, while also facing more expensive logistics to deliver to more remote destinations, traders said.

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“Russian Ural oil has always been a quality for Europe. To reach new markets, one now has to ship a cargo outside of Europe amid mounting concerns about transportation costs, insurance and timing,” said a trader on the Russian oil market.

The United States and the European Union are also working on a price cap for Russian oil, arguing that this will help cut revenues for Moscow while keeping global energy prices low.

Moscow has said it will not sell oil to countries that impose a limit, and traders say they don’t see the measure working.

“It is highly unlikely that Russia will work with a price cap, it makes no sense for Moscow both politically and economically. It is much easier for Moscow to negotiate private deals than to commit publicly to a price cap imposed by the West,” a statement read. another involved trader in the Russian oil trade told Reuters.

Russia exported 8.85 million tons of Ural oil from its European ports in August, of which India, China and Turkey — which are not expected to join the embargo — bought about half, with the rest going to Europe. Russia also supplies Europe with about 3.2 million tons of oil per month through the Druzhba pipeline. The route is technically excluded from the embargo, as Hungary, Slovakia and the Czech Republic want to continue buying from it.

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But the top buyers from Druzhba – Germany and Poland – want to stop the purchases from 2023, which means that about two million tons per month will have to find new buyers.


Diverting oil from Druzhba will be an arduous task as Russian oil ports have limited export capacity and sellers will have to arrange for more tankers, traders said.

Russia cannot divert large volumes of Ural into its pipeline in Eastern Siberia in the Pacific (ESPO), which is already nearly full. That makes shipments via Europe and the Suez Canal the only possible routes for crude Urals to Asia.

Even if Moscow offers more favorable terms, India and China are unlikely to be able to buy much more Russian crude, as they have several long-term contracts with rival producers, such as Saudi Arabia and the United Arab Emirates.

“Russian companies already offer discounts, shipping and insurance coverage, payment options and other benefits to keep buyers at bay,” said a source at an Asian oil trading company.

Russian companies will also have to change the way they sell crude oil.

Asian oil markets have a much earlier trading cycle than the European market: As of mid-September, Asian buyers are trading cargoes to be loaded in December, while Europe is still pricing cargoes in October.

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To prevent Russia from relying solely on China, India and Turkey for sales, Russia has tried to court smaller players, traders said. Sri Lanka has said it would start buying oil from Russia, but has only bought about 300,000 tons of Urals so far this year, according to data from Refinitiv Eikon. Cuba has bought 200,000 tons of Urals this year. “Small players are certainly not enough to absorb Russian oil. China is the last resort for Russian oil or Moscow must eventually cut production,” said a third trader involved in the Russian oil market.

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Reporting by Reuters reporters Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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