The U.S. has overtaken Russia as the top crude oil supplier to Europe, data shows, capping a remarkable 12-month period in which Moscow’s plan to weaponize its position as an energy superpower collapsed from strong Western opposition to the war in Ukraine.
Russian officials say they are making up for the shortfall by tapping into other markets around the world, including rapidly growing India and China. Many of its new customers are getting significant discounts because of the now-limited market for Russian oil.
Analysts warn that Russia has found methods to skirt Western sanctions and get its fuel to markets, making it difficult to evaluate the financial damage to the Russian energy industry as a result of losing European customers.
The Russian government recently announced a 5% cut in oil production through June because of decreased global demand. Government revenue from energy sales in the first two months of the year was reportedly half of what it was in the same period of 2022, though Russian government spending was up 50% because of the war.
One sign of Russia’s diminished status as an energy superpower is futures trading. Russia’s premier Urals crude oil hit a two-year low of $48.40 a barrel last week while the global benchmark Brent crude was trading for more than $75.
“Russia now has a lower bargaining power in the world oil market because they have less choice where to ship the oil,” Vasily Astrov, an economist with the Vienna Institute for International Economic Studies, told The Wall Street Journal this week.
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Russia’s political clout and reputation as a reliable fuel supplier in major Western markets such as Germany and Italy are likely gone for good.
The speed at which old Russian oil and gas markets have dried up and new ones have emerged is virtually unprecedented. Before its invasion of Ukraine in February 2022, Russia was Europe’s top crude oil supplier by a wide margin. Russia lost its advantage as Europe found new energy suppliers and avoided the cold, apocalyptic winter that many analysts predicted.
European Union figures released this week show that the U.S. provided 34.5 million barrels of oil to Europe in December, accounting for about 18% of the continent’s total crude imports. Russia provided 7.6 million barrels, or just 4% of imports.
Those numbers represent a rapid turnaround. As recently as last summer, officials warned that Europeans could face energy shortages, unheated homes and blackouts if Moscow slashed energy exports. Such fears were well-founded in the early months of the Ukraine conflict as European dependence on Russian fuel appeared to be Russian President Vladimir Putin’s greatest weapon in an economic war with the West.
From the last quarter of 2021 to January 2022, imports of Russian crude oil ranged from 39.7 million to 49.7 million barrels, according to EU data, or about 24% and 31% of all imports, respectively.
From late 2021 through January 2022, the U.S. accounted for 10% to 13% of imports, according to the EU. Several months into the war, those numbers began to shift.
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By May, Russian crude oil exports to Europe dropped to 24 million barrels, or 12% of European imports. The percentage declined each month thereafter before reaching a historic low in December.
EU officials left little doubt about the reason for the massive shift.
“Russia’s invasion of Ukraine in February 2022 had a significant impact on the import of crude oil into the EU,” Eurostat said Tuesday in an analysis of the most recent energy data.
“The decline in imports from Russia was compensated by a rise in imports from other sources,” the agency said.
Indeed, U.S. oil exports to Europe rose as rapidly as Russia’s fell. The share of Europe’s crude oil from the U.S. went up 6 percentage points from late 2021 to December 2022.
Other nations also helped fill the gap. Norway, already one of the continent’s biggest suppliers of oil, claimed an ever bigger piece of the pie and provided 32.9 million barrels in December. That was up 7 percentage points from a year earlier.
Oil imports from Britain and Libya also increased.
Western economic sanctions have also had a dramatic impact on Russian natural gas. Olga Khakova, deputy director of European energy security at the Atlantic Council’s Global Energy Center, wrote in an analysis late last month that Russia’s piped natural gas export volume plunged nearly 90% since the war in Ukraine began.
Moscow has slashed its gas exports to punish Europe for U.S. and European economic sanctions, but the move will carry long-term implications.
“Much of the market share will be challenging or impossible to recover, regardless of the war’s outcome, as European buyers commit to long-term contracts with alternative suppliers and invest in new liquefied natural gas infrastructure to bring gas to areas previously monopolized by Russian exports,” Ms. Khakova wrote.
The Kremlin’s long-term plans to increase Russia’s share of the lucrative Western European market took a literal hit with the apparent demise of the Nord Stream pipeline project. Mr. Putin hoped to bypass U.S. allies such as Ukraine and Poland and ship Russian supplies directly to Germany. Even before an unexplained underwater explosion in September damaged both the Nord Stream 1 and the still-unopened Nord Stream 2 pipelines, Western political support for the project had evaporated because of the Ukraine crisis.
There is little debate that Russia’s energy sector has undergone wholesale changes as a result of the war in Ukraine, but Russian officials say the results are more good than bad.
“Most of our energy resources were redirected to other markets, to the markets of friendly countries. Let me remind you that if we take oil supplies to India, they increased 22 times last year,” Russian Deputy Prime Minister Alexander Novak said Tuesday, according to Russia’s Interfax News Agency. “Supplies to the People’s Republic of China, to other markets increased. This is also a result of the great work that has been done in the industry.”
Analysts say the U.S. and European sanctions likely haven’t squeezed the Russian energy industry as much as anticipated, though it’s difficult to know for sure how much damage has been done or how the energy-related sanctions have impacted Kremlin decision-making.
“Western policymakers have described energy-related sanctions and the oil price cap as key tools in changing Moscow’s behavior,” researchers with the Energy Innovation Reform Project wrote in an analysis this month. “Yet it is unclear to what extent the sanctions and the price cap have yet produced the pain policymakers appeared to expect. Existing measures have not prevented record shipments to China, India and Turkey.”
• Ben Wolfgang can be reached at firstname.lastname@example.org.
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