Russia's Oil Woes: A Sharp Decline and Its Impact
The latest news from the energy sector has sent ripples across the globe, with Russia's seaborne oil exports experiencing a significant downturn. Bloomberg's report on November 4th revealed a dramatic drop in crude shipments, marking the steepest weekly decline since January 2024. But here's where it gets controversial: this decline coincides with the U.S.'s recent sanctions on Rosneft and Lukoil, Russia's oil giants.
The sanctions, imposed on October 22nd, have had an immediate effect, freezing U.S.-based assets and threatening secondary sanctions against any foreign entities engaging in trade with these companies. As a result, the four-week average volume from Russia's ports has plummeted to 3.58 million barrels per day as of November 2nd, a decrease of 190,000 barrels from the previous week.
During the week ending November 2nd, a mere 26 tankers loaded 21.11 million barrels, a stark contrast to the 34 vessels carrying 26.41 million barrels the week before. On average, daily exports dropped to 3.02 million barrels, a significant 20% decrease from the previous week's 3.77 million.
And this is the part most people miss: much of this oil remains undelivered, with tankers now serving as floating storage facilities. Since early September, when the U.S. doubled tariffs on India, the amount of Russian oil stored at sea has increased by a staggering 8%, now exceeding 380 million barrels. This is equivalent to over 100 days' worth of exports, a worrying sign for Russia's oil industry.
At the start of the year, around 340 million barrels were held in tankers, indicating a substantial rise in stored oil. India, China, and Turkey, which collectively account for approximately 95% of Russia's crude exports, have paused or reduced imports, seeking clarity on compliance risks. Some buyers have turned to smaller, unsanctioned Russian suppliers, but many are now sourcing oil from alternative markets.
For instance, India's largest private firm, Reliance Industries, has announced its adherence to U.S. sanctions and a shift towards crude from the Middle East, the U.S., and Brazil. Similarly, Indian Oil Corp., the country's biggest state-owned refiner, placed no Russian orders after the sanctions came into effect.
The sanctions' impact is further compounded by Ukraine's intensified strikes on Russian oil infrastructure, reducing output and exports. This combined effect has benefited Western competitors, with refining operations among ExxonMobil, Chevron, Shell, and TotalEnergies seeing a 61% profit increase in the third quarter compared to the previous quarter, contributing to an overall 20% earnings boost.
As Europe plans its strategy to phase out Russian oil and gas, the path ahead is fraught with challenges. The EU must decide between phasing out remaining Russian fossil fuel imports by early 2027 or granting itself an additional year. Either way, the bloc faces resistance from certain capitals and the task of securing new sources to replace the billions of euros' worth of Russian oil and gas still flowing into the EU each month.
The Kyiv Independent's Toby Woodall explores how Europe intends to navigate this complex energy transition, providing an insightful look at the strategies and obstacles ahead.
