Russia
earned over US$110 billion in 2021 from oil exports, twice as much as its
earnings from natural gas sales abroad.
Russia
produces close to 11 million barrels per day of crude oil. It uses roughly half
of this output for its own internal demand, which presumably has increased due
to higher military fuel requirements, and exports 5 million to 6 million
barrels per day. Today Russia is the second-largest crude oil producer in the
world.
About half
of Russia’s exported oil roughly 2.5 million barrels per day is shipped to
European countries, including Germany, Italy, the Netherlands, Poland, Finland,
Lithuania, Greece, Romania and Bulgaria. Nearly one-third of it arrives in
Europe via the Druzhba Pipeline through Belarus.
China is
another large buyer: It imports 1.6 million barrels per day of Russian crude
oil. Half comes via a special direct pipeline, the Eastern Siberia Pacific
Ocean pipeline, which also services other customers via a port at its end
point, including Japan and South Korea.
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1- The Jones
Act, passed a century ago, has effectively limited the size of vessels that are
allowed to transport goods between U.S. ports. That has left oil buyers on the
West Coast and East Coast effectively unable to get supplies shipped out of the
Gulf Coast.
The Gulf
Coast, where oil companies shipped out about 3 million barrels a day in
December, is connected by pipelines to the Permian Basin of West Texas and New
Mexico and Cushing, Okla., the nation’s oil storage hub.
It isn’t
profitable for companies to ship oil from that region to the U.S. East and West
Coasts by such small ships, so refiners along those coasts, lacking pipeline
connections from the Permian and Cushing, mostly import it from overseas.
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2- The U.S. and other major oil-consuming nations said that they would release 60 million barrels from emergency stockpiles to boost global supplies. Still, oil prices jumped past $110 a barrel Wednesday after some refiners refused to buy Russian oil due to the risk that they could be ensnared by sanctions.
3- Oil
shipments are arguably easier to reroute than natural gas, which has to be
super-chilled to liquefy it for ship transport, then converted back to gas at
its destination port. That means Russia’s crude oil may potentially be easier
for European countries to replace and reroute than its natural gas, which
relies more heavily on pipeline delivery, depending on market conditions.
4- It’s not certain that China and India would cooperate, but it would be in their interests to do so. They are major oil importers and would not want to see higher crude oil prices.
5- At last, Oil and gas are hot commodities, and they are what economists call ‘fungible goods’, meaning they can be easily interchanged with another form of the same product. If we try to block Russian oil and gas exports, we will have to buy from another producer and the countries that once bought from that producer will simply turn to buy from Russia. Supply and demand sorts it out.
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