- Inflation is outgrowing wage growth in the USA.
- The embargoes have targeted different sectors, including oil.
- In the wake of the biting sanctions, the country is finding an alternative market in Asia.
Russia’s invasion of Ukraine has turned it into a pariah state. That ostracization has come at a heavy price in economic sanctions. For instance, one of its core revenue earners, the petroleum industry, is staring at an uncertain future. That’s because the EU, Russia’s primary market for oil and its products, is cutting its imports by two-thirds.
Some nations, including the UK and the U.S., have already banned the import of Russian oil. According to a CryptoMonday analysis, that has forced the country to rethink its trading relationships by placing more emphasis on Asia. CryptoMonday concludes that Russia’s oil exports to Asia grew by 58% between its February invasion of Ukraine and now. That growth has seen its initial supply of 1.2 million barrels per day (BPD) to the region approach the 1.9M BPD mark.
“Russia is having to make some tough choices in the wake of biting sanctions,” says CryptoMonday’s CEO Jonathan Merry. He continues, “The economic embargoes it is facing are compelling it to consider alternative markets to its oil. That’s visible through expanding its shipment to Asia, particularly China and India. It is using its highly discounted prices to grow market share in the region.”
Russia’s revenues have dipped despite growing shipments to Asia
The increased exports have come at a significant cost to Russia. The country has had to heavily discount its crude oil shipment to attract Asian buyers. A Bloomberg report indicates that between May and June, duty rates for Russian oil shrunk by 10% after dropping from $6.81/barrel to $6.11/barrel.
Those figures are 27% shy of their April 2022 highs of $8.30/barrel.
Market data shows that Asia absorbs 50% of Russia’s seaborne crude. That is a significant leap from the roughly 33% the region bought pre-Ukrainian invasion. And as stated before, China and India take the lion’s share of those shipments. China accounts for roughly 1M BPD, up from nearly 600,000 in February. Meanwhile, India has ramped its quota 24X from the 25,000 BPD it imported in February.
Whereas that's some positive news for Russia, things aren't as rosy for its Northern Europe (NE) market. The sanctions have wiped out nearly two-thirds of the country’s seaborne oil exports to NE. These have whittled down to about 450,000 BPD from 1.25M BPD in early January.
Things are looking ominous for Russia’s oil sector
The EU has ratified a raft of sanctions targeting Russia’s oil business. These will begin operating on December the fifth of this year and target seaborne exports. Some nations are already enforcing the embargoes resulting in the erosion of most of Russia’s Northern Europe market.
This new set of prohibitions excludes supplies via the Druzhba pipeline network. Nevertheless, Germany and Poland have resolved to end their importation of Russian oil through the pipeline. Their exit leaves Hungary, Slovakia, and the Czech Republic as the only users and will cut European deliveries by nearly 90%.