Russia’s income from oil and gas sales to the EU has collapsed: only 20% of supplies were redirected

EU countries purchased €29 billion worth of oil and gas from Russia in 2023. The volume decreased by 2.9 times compared to 2022, according to data from the statistical service Eurostat. On the one hand, it turns out that interaction in the energy sector between Western countries and the Russian Federation continues, despite numerous sanctions. On the other hand, such a powerful fall could not remain without economic consequences. Was Russia able to redirect oil and gas flows and how effectively? How does the situation with falling revenues from oil and gas exports affect the domestic budget and with what indicators will we close 2024? “MK” addressed these and other questions to specialists.

– Assess the scale of losses for Russia from the decrease in oil and gas exports to Europe. Can the volume decline be called extremely sharp? – we asked the head of the analytical department of AMarkets Artem Deev.

“In 2022, Russia earned more than 90 billion euros from the supply of oil and petroleum products to the EU,” the expert answered. “At the end of last year, Russian exports to 27 EU countries fell by two-thirds.” Which, of course, may seem like a noticeable drop – however, it is important to understand that 2022 was also an anomalous year in this regard.

-The reduction was expected and part of Russia’s export flows were managed to be redirected. Is it possible to estimate their share? What areas has Russia bet on?

-The share of the European Union in Russia’s trade turnover decreased from 36 to 15%, and with friendly countries it increased from 46 to 77%. Thus, in my opinion, we can say that we managed to redirect at least 20% of supplies. Mainly, of course, we are talking about increasing supplies to China, India and the Southeast Asian region in general.

– Will supplies to Europe continue to decline in 2024?

– Of course, the volume of supplies of Russian raw materials to Europe will continue to decline. Especially considering that the collective West continues to increase sanctions pressure. However, the drop will not be so noticeable: firstly, Russia has already redirected large volumes to friendly jurisdictions, and secondly, many EU countries are quietly sabotaging, and Hungary openly opposes new restrictions. This makes it possible to hope that new sanctions will not be introduced at the same pace as before.

– Can we consider that with the fall in oil and gas exports, Russia has finally gotten off the oil needle, which our economists have been discussing for at least a quarter of a century? – we asked the chief researcher at the Institute of Economics of the Russian Academy of Sciences, Doctor of Economics Igor Nikolaev.

“It is a fact that our oil and gas revenues have decreased significantly,” Nikolaev said, “But I would not overestimate the situation and say that we have gotten off the oil needle.” Actually this is still a question. But we are a country naturally rich in oil and gas. So what now – do we have to give up this competitive advantage? For some reason, no one calls Norway or Saudi Arabia “gas station countries.” These states simply show that they need to manage their competitive advantage wisely.

– How critically has our oil and gas revenues decreased from the point of view of the entire domestic economy?

– Yes, our oil and gas revenues have decreased significantly, but I think it’s not critical. Russian energy exporters have managed to rebuild their logistics. Countries such as India and, to a large extent, China have replaced the volumes of other partners in imported resources from Russia. And since oil and gas revenues have dropped, and revenues from manufacturing industries have grown, in the end everything seems to be going well for us. But the question is: how sustainable are these manufacturing revenues, which have largely replaced oil and gas revenues? I’m afraid there will be problems with this. If not in 2024, then in 2025 we will be able to feel them.

– What is your forecast for the export of Russian raw materials to Europe for 2024? – we address the question to the leading analyst of the National Energy Security Fund, Igor Yushkov.

“Most likely, the volume of sales of Russian gas to EU countries, expressed in dollars, will be less in 2024 than last year, even if the previous volumes of exported fuel remain the same,” the expert said. “Judge for yourself: if at the beginning of 2023 Europe bought Russia has gas for $500-600 per thousand cubic meters, then by the beginning of 2024 it dropped to a level of $300-350 dollars. And, most likely, throughout this year the cost of Russian gas will be just as low.

In addition, there is a high probability that Ukraine, under pressure from the United States, will completely block the transit of gas from the Russian Federation through its territory, without waiting for the end of contracts expiring at the end of this year. Meanwhile, last year Russia supplied 14.5 billion cubic meters of gas to Europe through Ukraine, that is, more than half of the total volume of exports to the EU, which amounted to 27-28 billion cubic meters.

– What are the prospects for our oil exports to the Old World?

– For now, the price of Russian oil remains at a fairly high level – about $80 per barrel. But during the current year, fluctuations are possible in both one and the other direction. Accordingly, the Russian Federation’s income from oil supplies abroad can either rise or fall. Fuel costs could rise if conflict in the Middle East escalates, especially if Iran becomes involved in a conflict with the United States and closes the Strait of Hormuz, through which 20% of global oil trade passes.

– What if this doesn’t happen?

– Then the situation on the oil market will stabilize, and the cost of the Russian mark may drop to $70 per barrel, since a number of countries outside OPEC+ plan to increase oil production. This could negatively impact the financial results of Russian oil exports in 2024.