Despite efforts by Western countries to spare the energy sector from economic sanctions against Russia, the country’s oil supply has been left hanging in the balance as importers — including those in the US — put orders on hold as they seek other sources, potentially threatening the global energy supply.
Russia is the second-largest crude exporter in the world next to the US, shipping about 5 million barrels per day (bpd) of crude, accounting for about 12% of global trade, according to the International Energy Agency.
With Russia supplying nearly 40% of the European Union’s natural gas and over 25% of the region’s crude oil, many Western leaders have excluded Russian oil from the raft of sanctions imposed on the Kremlin in an effort to not disrupt the global energy supply.
The US, despite being the world’s largest crude exporter, imports Russian oil to power up its refineries when local supplies are down. US Senator Edward Markey on Monday said the US imported about 245 million barrels of oil from Russia in 2021, contributing to about USD 17.4 billion in revenue to Russia.
However, with growing pressure from lawmakers and other trade bodies to target Russia's oil industry, which accounts for a large portion of its gross domestic product, US President Joe Biden and 30 other world leaders on Monday committed to releasing 60 million barrels of oil from their state reserves to stabilize global energy markets. Of the total, the US will be releasing 30 million barrels.
US Energy Secretary Jennifer Granholm also stressed the need to invest in clean energy "to reduce domestic and international dependence on Russian oil and gas.”
But with the growing global condemnation against Russia and efforts to block the Kremlin’s access to key commodities, the US dollar and to practically everything, traders in the US have started to reject Russian ships, with some warning of the potential impact on global oil supply.
"People are not touching Russian barrels. You may see some on the water right now, but they were bought prior to the invasion. There won’t be much after that,” a New York Harbor trader was quoted by Reuters as saying on Monday, adding that “no one wants to be seen buying Russian products and funding a war against the Ukrainian people.”
Some of the largest oil companies have also started to make moves against Russia amid its escalating war with Ukraine. Exxon Mobil (NYSE:XOM) on Tuesday said it would discontinue its Russian operations that it manages with partners from Japan, India and Russia, while Shell (NYSE:SHEL) also disclosed plans to exit its joint ventures in Russia with local natural gas firm Gazprom.
ExxonMobil and Shell’s decisions follow that of peer BP (NYSE:BP), which on Sunday said it would sell its nearly 20% stake in Russian state-controlled oil company Rosneft.
The aversion to Russian oil has resulted in a substantial discount to the country’s key Urals oil grade, with oil trading giant Trafigura Group offering to sell a cargo of Urals grade for USD 18.60 a barrel less than benchmark prices, according to Bloomberg News.
In contrast, Brent oil prices rose over 9% on Wednesday to more than USD 114 per barrel, topping earlier predictions that the Russia-Ukraine crisis could drive oil prices to about USD 110 per barrel.
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