Although Russia is trying to divert its energy exports East to Asia, namely China, it still highly relies on the European market which captures more than 85% of its pipeline gas exports. In contrast, Europe relies on 40% of its gas imports from Russia and has been constantly working to decrease that reliance.
Furthermore, the Asian market is not guaranteed for Russia. Over the last two years, China has announced several energy related measures and targets, including reducing energy imports while increasing domestic production, particularly for natural gas. Besides, the gas infrastructure from Russia to Asia is not as developed as in Europe and Russia’s Liquified Natural Gas (LNG) is not as developed as its pipeline business. LNG accounts for less than 20% of Russian gas exports. In this respect, if Russia loses the European market, it will be hard for it to find immediate alternative markets similar to Europe’s importance.
Oil markets are fundamentally different from gas markets due to the own liquid nature of oil which makes it easy to transport and store. In contrast, in gas markets, the buyer and the producer typically enter in a long-term relationship spanning years and even decades. This fundamental difference leads to a dissimilar impact of sanctions in each market.
In oil, as long as there is no unified global action towards imposing sanctions on Russian oil, the impact on Russia will be limited. Oil markets are quite liquid and Russian oil will find buyers especially as it is traded at a discount. Additionally, crude can be transformed into products and then sold back to Europe in the form of diesel for instance. What would hurt most is an embargo on Russian gas but that would be probably as painful to Europe at least in the short term.
On the reasons behind the retreat of western oil companies, Dr Nakhle argues that these companies followed their countries’ policies and shareholders’ preference; besides, the reputational risk from continuing their business in Russia is too high to take.
Dr Nakhle is joined by Robin Mills.
Watch the discussion:
“Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022
“Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022
“No endgame for Ukraine“, Christof Rühl, Feb 2022
“Oil Prices and EU Energy Crisis“, Dr Carole Nakhle, Apr 2022
“Putin demands gas exports to be paid in rubles, and US SPR release“, Dr Carole Nakhle, Apr 2022
“The EU’s 4th round of sanctions on Russia“, Dr Carole Nakhle, Mar 2022
“Can Europe completely cut its reliance on Russian energy supplies?“, Dr Carole Nakhle, Mar 2022