Status: 04/05/2022 11:22
How badly would an oil embargo hit Russia? The state budget is also based on revenue from oil activity. Therefore, the Kremlin is now counting on buyers such as China and India. But experts expect consequences for the Russian oil industry soon.
It’s a bleak picture that Russian economist Natalya Zubarevich painted at a recent event organized by the Association of Russian Banks. The economic crisis in the country, she explained bluntly, has only just begun. “We are in free fall, we are far from having hit bottom. This crisis is going to be long, difficult and hard.”
The budget is fueled by oil revenues
The sanctions were slowly but surely taking effect in the industrial and logistics sectors. More sanctions are on the way. Even without an oil embargo, demand drops significantly: “Oil is simply not bought. Tankers are blocked and not unloaded. Not all, of course, but some. There is a drop,” says Subarevich. According to the expert, the fact that the Russian state budget still depends to a large extent on oil revenues is now taking its toll.
According to official figures, oil and gas revenues accounted for almost 36% of last year’s budget. The lion’s share is in the oil sector. According to the national statistics agency, Russia exported about 230 million tons of crude oil in 2021. To this are added 144 million tons of petroleum products. Total revenue was $180 billion.
Moscow no longer focuses on the West
So far, half of Russia’s oil exports have gone to Europe. The fact that the markets are now collapsing here is something Russian President Vladimir Putin is quite relaxed about. “We assume that for the foreseeable future we will deliver less fossil fuels to the West,” he admits. But the Kremlin’s attention is elsewhere anyway: “That is why it is important to consolidate the trend of recent years and gradually direct our exports towards the fast-growing markets of the South and East”, Putin said.
Russia now wants to do more business with India and China in particular. The need is there. But not the necessary infrastructure, says energy expert Mikhail Krutichin. Transport capacities are already at their limit: “China received 83 million tonnes of oil last year. And that’s the greatest feeling. There’s no other way to tell,” Krutichin says. Because the oil pipelines between Eastern Siberia and the Pacific Ocean are already working at the limit, and the port of Kazimo with the branch directly to China and the Omsk-Pavlodar pipeline and further through Kazakhstan to China are in done at the load limit.
Noticeable consequences are not expected until the fall
The energy expert believes that Russia will have no choice but to reduce its production and close old less efficient oil fields: “It will not make economic sense to restore them. This means that Russia’s main source from which the national budget is fed will lose.” Like Subarevich, Krutichin also expects massive job losses in the oil industry; with the impoverishment of entire cities dependent on oil extraction and processing.
All of this is a slow process that is now underway. The consequences would probably be felt in the fall. Because the state has taken precautions, created reserves and still benefits from the current price of oil. And: Deputy Prime Minister Alexander Nowak has made it clear, with reference to OPEC countries, that Russian oil supplies cannot be replaced immediately on the world market – not even in Europe.
Oil embargo: Russia’s dependence on black gold
Christina Nagel, ARD Moscow, May 4, 2022 07:01