Russia sets new records for oil exports: what’s the catch

Why production achievements do not yet affect the increase in treasury revenues

Neither the price ceiling, nor other sanctions, nor even its own promises to reduce production prevent Russia from increasing its oil exports. According to the International Energy Agency (IEA), in April, the supply of liquid hydrocarbons and finished fuel increased by fifty thousand “barrels” and amounted to 8.3 million barrels per day. The last time such export volumes were recorded was more than a year ago.

It’s worth throwing off the positive production veil right away: according to the IEA, despite high export results of 5.2 million barrels per day, Russia’s income from the supply of “black gold” abroad turned out to be almost a third less than in the same period last year. In turn, total tax revenues from the oil and gas sector fell by 64%.

It is not worth celebrating the victory over Western sanctions and other economic intertwining for one more reason. To this day, domestic producers have to sell oil at significant discounts: according to the Ministry of Finance, the average price of a “barrel” of Urals from mid-April to mid-May was about $56, while Brent quotes reached $80. It is not difficult to calculate that the discount of the Russian mixture to the North Sea reference brand reaches almost 30%. We can only be content with the fact that Russia has managed to achieve confident and convincing breakthroughs in a number of regional international markets. In particular, our country came out on top in the supply of “black gold” to China and India. However, as recent practice shows, the number of barrels sold abroad no longer generates stable revenue, as before.

Nevertheless, the realization that even under the conditions of total restrictions Russia manages to get out and continue to pump foreign exchange earnings (although now it is largely formed by Chinese and Indian banknotes) does not leave Europeans alone. According to the head of EU diplomacy, Josep Borrell, the time has come to punish and subject to economic persecution countries that did not enter into a sharp geopolitical controversy with Moscow and increased the import of hydrocarbons. First of all, we are talking about India, whose authorities are accused of increasing the processing of Russian raw materials supplied at reduced prices and subsequently re-exported throughout the planet.

International lawyers have repeatedly pointed out that New Delhi will not have problems responding to such reproaches if such reprimands are legally confirmed, and the regulators’ conclusions become a reason for financial costs. For example, Indian Foreign Minister Subramanyam Jaishankar has already noted that, according to the rules of the EU Council, after the delivery of Russian oil to a third country, the legal status of the cargo is significantly transformed – theoretically, raw materials are no longer considered as Russian. In this regard, there are plenty of buyers for the proposed hydrocarbons on the world market: demand is steadily growing in African, Middle Eastern and Latin American states.

In the future, the record growth rates of Russia’s oil exports, according to experts, will depend on many circumstances. Although our country, despite the sanctions traps, still managed to maintain and even strengthen the sea transportation of raw materials, many other issues, relating in particular to technological aspects, remain unresolved. One way or another, our country has promised to reduce oil production this year by 500,000 barrels. Moscow’s OPEC+ partners, including Saudi Arabia and the United Arab Emirates, followed the Russian initiative and, in cooperation with other members of the alliance, reduced production by the same amount.

Such a move was then in the hands of Russia: a sharp break in contracts by many European states led to the formation of a fuel surplus, which had to be quickly realized. According to Natalya Milchakova, a leading analyst at Freedom Finance Global, the growth in exports of Russian oil and oil products in April indicates that by the spring of this year, our country was able to redirect export supplies from the west to the east, primarily to China and India. These two countries, according to the forecasts of OPEC and the same IEA, by 2030 together will provide a quarter of world oil imports.

“However, Russia will not be able to sell oil without a discount at all,” the expert believes. — Competition in the commodity market is high, and the best way to attract a client is a price preference. Next year, most likely, there will be no such discounts as now. Russia is not the only oil supplier in the world that sells its oil at a discount. For example, Saudi Arabia almost every month announces price revisions for customers: it gives discounts to some geographic regions, increases prices to others. This is a market where each supplier competes for the customer. Russia, which previously often focused on long-term buyers, will now increasingly have to profit from more details.”