Named the possible consequences of the ban on the supply of Russian oil through the pipeline “Druzhba”

Poland insists on new sanctions

Threats of tougher Western sanctions against Russia are intensifying every day. The new package of economic restrictions, at the suggestion of Poland, should include a ban on the export of oil from our country through the Druzhba pipeline, which remains almost the last supply channel to the EU. There will be buyers for the surplus of raw materials on the world market: demand is growing in African, Middle Eastern and Latin American states. Nevertheless, the implementation of the Polish plan threatens Russia with an almost complete loss of access to the European energy market and a significant reduction in export earnings.

The proposals for a new package of sanctions against Russia, prepared by Warsaw, were reported by Reuters. Among these measures are restrictions on the import of diamonds and a ban on oil supplies from our country through the Druzhba pipeline. Both will prove to be quite painful blows for Russian exports. Domestic manufacturers provide about a third of the world’s supply of precious stones, earning up to $250 million a month.

However, the main object of Poland’s attack is still the hydrocarbon industry. After the expansion of anti-Russian sanctions in December 2022, when the EU countries imposed an embargo on offshore oil supplies from the Russian Federation, transit through Druzhba partially continued to be carried out. Previously, this route provided raw materials mainly to Germany and Poland, which have now completely broken off contracts with our country. However, Hungary, the Czech Republic and Slovakia, whose economies are critically dependent on Russian raw materials, managed to maintain supplies. The volume of exports to these states even increased: in the first months of this year, Prague purchased 25%, and Budapest – 45% more hydrocarbons than in the same period of 2022.

In connection with Warsaw’s prohibition proposal, it is appropriate to recall how, in principle, the system for pumping oil through the Druzhba pipeline was arranged. This system of raw material highways originates in the heart of oil Tatarstan – the city of Almetyevsk, then reaches the Belarusian Mozyr, where processing facilities are located, and then is divided into two export sections: the northern one is laid through the territories of Poland, Germany, Latvia and Lithuania, and the southern one goes through Ukraine , Czech Republic, Slovakia, Hungary and Croatia.

“Stopping the pumping of raw materials through the northern branch of Druzhba does not affect supplies through the southern branch,” argues TeleTrade analyst Alexei Fedorov. In 2022, Druzhba exports decreased only to Germany, but other European buyers, on the contrary, increased imports. The data for the beginning of this year shows that the volume of supplies through the main domestic pipeline to the Czech Republic and Hungary continues to grow: the southern branch of the Druzhba not only does not reduce capacity utilization, but also increases its transport volumes. “The main current consumers of energy resources coming through Druzhba – Hungary, Slovakia, the Czech Republic – are unlikely to agree with the Warsaw initiative. Poles for political reasons rolled back from the purchase of Russian fuel. Forcing their partners in the European Union to take a similar step does not yet look economically justified,” the expert believes.

According to Natalia Milchakova, a leading analyst at Freedom Finance Global, Poland is “shooting itself in the foot” by refusing Russian oil. Now Warsaw will be forced to purchase hydrocarbons from other producers at the market price.

Today, Brent quotes reach $85 per barrel. The Russian grade Urals was supplied to Europe with a discount of $5-20 per barrel. Pipeline contracts could provide buyers with even more significant discounts. “By legally implementing new sanctions against Russian oil, Polish politicians will deprive not only their own population of the opportunity to save money, but also the residents of their “brothers” in the EU,” the analyst concludes.

Refusal of deliveries via the Druzhba pipeline is forcing the Europeans to reorient themselves towards alternative production capacities. And there are not many of them in the world. Kazakhstan, which also has significant hydrocarbon deposits and export potential, is going to increase shipments to the raw material bases of the Old World. In general, Astana can supply up to 6-7 million tons of “black gold” annually to Germany alone (about a third of the previous Russian supplies).

“In Kazakh oil produced at new fields, the sulfur content is less than in Urals. However, many refineries in Eastern Europe, built back in the days of the USSR, are geared towards processing Russian sulfur fuel,” Milchakova recalls. According to her, in order to completely abandon our oil, the Europeans will have to invest billions of dollars in the modernization of their processing enterprises. Most likely, the EU countries will find money for these purposes, but their residents will have to put up with the rising cost of utilities for a very long time.

However, the financial losses of our country in the event of a complete stop of the “Friendship” can also be quite painful. Representatives of the European Commission estimated the economic damage to Russia from the previous, tenth package of sanctions at 11.4 billion euros. The eleventh package, which is still being developed, according to the intention of its authors, should bring no less losses to the Russian economy.