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- Russian oil may not save Putin’s economy from crumbling amid the war in Ukraine.
- The European Union is weighing a ban on Russian energy exports this week.
- China, for its part, is unlikely to be able to take new supply from Russia, according to the Dallas Fed.
Not even Russia’s oil may be able to save its economy from crumbling under the weight of international sanctions.
That’s because the US and UK have already barred Russian oil; the European Union is weighing a possible ban of its own, and China, for its part, may not have the capacity or infrastructure to take on more of Vladimir Putin’s petroleum.
Russia’s attack on Ukraine last month prompted widespread sanctions from the West that have tanked the Russian ruble and put the country on the verge of of defaulting on its debts. The country’s saving grace may have been its oil production — but that hope is waning.
Since the war began, around 3 million barrels of petroleum per day, or 3% of global production, has been effectively removed from the worldwide oil market. That supply shock — the largest in decades, according to a Tuesday report from the Federal Reserve Bank of Dallas — has sent oil prices surging past $100 a barrel, with some experts predicting even higher prices to come.
The Dallas Fed suggested one way to address the shortfall would be for China to use heavily discounted oil from Russia in place of more expensive imports from elsewhere. That idea, however, is “unlikely anytime soon,” the monetary authority said.
“There is very limited spare capacity in oil pipelines connecting China to Russia, and it is unclear where China would procure the oil tankers required for shipping more oil to China and at what cost,” the Dallas Fed wrote.
The European Union, for its part, is considering whether to join the US and the UK in sanctioning Russian energy exports this week, though leaders remain divided on the matter.
Famed French commodities trader Pierre Andurand told Bloomberg News last week that many countries are avoiding Russian oil even without government sanctions. He said banks — including Chinese banks — don’t want to finance Russian oil cargo amid Putin’s attack on Ukraine, and soon Russia will have to stop production when they run out of storage capacity. Until the world can once again trust Russia, he said oil from the country is likely “gone for good.”
“We’ll have to live with higher prices to keep demand down,” he told Bloomberg.
