Europe closes the Druzhba oil pipeline: who will suffer more

Half-century export of “black gold” is frozen by new sanctions

The 11th package of anti-Russian sanctions agreed upon by the European Union included a ban on oil supplies via the southern branch of the Druzhba pipeline. In fact, the export of Russian “black gold” to the states of Western Europe via land routes, which began more than half a century ago, will stop at this point. According to experts, Moscow will not experience any particular financial losses from this: the previously approved restrictions have already reduced the volume of deliveries through Druzhba to a minimum. Much more damage will be suffered by the Czech Republic, Slovakia and Hungary – the only countries of the Old World that until recently covered their energy needs through Russian oil pipeline supplies.

A new package of sanctions against Russia, according to German MEP Gunnar Beck, will be adopted by the EU summit, which is scheduled for June 29-30. “There are Polish postulates regarding the full imposition of sanctions on the southern Druzhba,” a German diplomat reveals the details of the new restrictions.

Recall that the Druzhba oil pipeline, which was built from the late 1950s to the early 1980s, was laid from the producing provinces of Tatarstan and Bashkiria to the Belarusian city of Mozyr, where transit and processing facilities are located. Further, the highway is divided into two branches: the northern one is directed to Poland and Germany, and the southern one is laid through Ukraine to the Czech Republic, Slovakia, Hungary and Croatia. A year and a half ago, this hydrocarbon hub could be called the largest oil transportation system on the continent, but after Europe announced an embargo on the purchase of Russian energy resources, the situation changed dramatically. Deliveries via Druzhba were significantly reduced: if in 2021 about 36 million tons of oil were exported via this route (in 2022, the volumes remained at the same level), this year the transportation of “black gold” fell almost 5 times, and Germany and Poland reduced their purchase volumes by more than 12 times. According to Eurostat, the monthly supply of oil of Russian origin to the Old World has decreased by 90%.

Nevertheless, the Europeans did not completely abandon hydrocarbons from our country. Moreover, after the damage to the Kakhovskaya HPP, Hungary and the Czech Republic increased the volume of Russian oil pumped through Druzhba by 16% due to fear of possible interruptions in the delivery of raw materials through Ukraine. In principle, raw materials were supplied along both routes: only Russian energy resources went along the southern branch, and fuel from Kazakhstan was delivered along the northern route.

Dmitry Skryabin, portfolio manager at Alfa Capital, believes that it is too early to draw conclusions about the consequences of the 11th package of EU sanctions – the exact wording of the restrictions, which are not yet available, is important. “Russian oil does not go to Europe along the northern branch even now,” the expert argues. – The volume of deliveries through the southern part of the pipeline is relatively small – about 200-250 thousand barrels per day (10-12 million tons per year). For example, China bought more than 9 million tons of Russian oil in May alone. Therefore, even if the southern branch of Druzhba is closed, domestic exporters will not experience any special problems.”

At the same time, Sergey Suverov, an investment strategist at Arikapital Management Company, is sure that the sanctions against the most powerful raw material transport channel in the recent past clearly demonstrate that the Russian energy potential in Europe is gradually becoming a thing of the past. Deliveries to the countries of the Old World were confirmed by long-term contracts and were provided by an already built and well-proven transport system from an operational point of view. In the Asian direction, where our country is going to redirect its oil exports, there are no pipelines of similar capacity: new pipes have yet to be built, but for now, exports to the East are carried out at a discount and additional infrastructure costs. “There is great doubt that our country will be able to promptly offset the loss of European contacts, including the complete “freeze” of exports via Druzhba, with the same highly profitable analogue,” the analyst warns.