The barrel will find a hole

In April, Russia set a record for the volume of oil exports from the beginning of the invasion of Ukraine - despite all the sanctions. We explain how it became possible

After the introduction of the Western sanctions of Russia, it was possible to redirect the supply of oil and oil products to China and India. Moreover, the export of these goods in April reached a record value from the beginning of the invasion of Ukraine. At the same time, in January - April, the budget lost 52% of oil and gas revenues compared to 2022. We explain that this means whether the West managed to deprive Russia of raw materials of superior.

Where did Russian oil go

In April, Russia exported an average of 8.3 million barrels of oil and oil products per day - this is a record since the beginning of the war in Ukraine, the International Energy Agency (IEA) reported . Export in April was almost 8% higher than on average in 2022, and by 10.6%-than in 2021. At the same time, the supply of raw oil increased mainly, oil products export decreased by 6%.

These figures are explained by the fact that Russia, it seems, does not experience problems with the search for new consumers in the place of European countries, said the Analysts of the MAA. At the same time, Russia itself classified the production and export data, so the real numbers can slightly differ from the agency’s assessments. Many transactions deliberately went into the shadows, and the oil market has become very opaque, a specialist in the world energy market of the Institute of Energy and Finance Alexei Belogoryev notes in a conversation with the Novo-Europe.

The increase in supplies in the conditions of sanctions is not so surprising if you understand what purpose the restrictions were introduced. The coalition of Western countries was just trying to avoid a sharp decrease in oil exports from Russia, Belogoryev draws attention. “The oil market is generally a fairly tense situation, so the path of influence on prices was chosen, not the volume of supplies,” he says.

Almost six months after the introduction of the western embargo and the ceiling of prices, 80% of Russian oil exports falls on India and China, although before the war about 60% of supplies went to Western countries. Now they go to Asia mainly by sea - hence the growth of sea transportation by 18% in the first quarter of this year.

Most of the oil in the western ports of Russia was sold below the ceiling, but in the east, Russian companies and their partners bypasses sanctions, the economists suggest . From the port of the Kozmino of the Primorsky Territory, 95% of oil was exported at a price above the ceiling. At the same time, more than 50% of the vessels transported by it belonged to companies (or were insured by them) from countries that imposed sanctions.

Thanks to the discounts, Russia squeezed competitors from these markets from the Middle East and Africa, Bloomberg notes . In more than a year, the share of Russia in the procurement of India increased from 2 to 20%. In China, Russia has increased a share from 25 to 36%. The supply of Russian oil to Europe is also growing, but already in a processed form - from Indian factories. Having doubled deliveries to the EU, India even overtook Saudi Arabia.

In general, it would be more profitable in Europe to directly receive Russian oil products, but in the current conditions, such a scheme allows you to hold the market prices. “Russia sells oil to India with a discount, and this allows Indian suppliers of oil products also not to increase prices,” says Belogoryev.

Discounts are not the same

It increased in a month and the price of Russian oil. According to the IEA, the average cost of all domestic varieties in April exceeded $ 60 per barrel (under the contracts Free On Board, which do not take into account the costs of delivery and insurance). This happened for the first time after the introduction of sanctions against Russian oil in December. The main variety of Urals cost $ 55 in April, and the more expensive pipeline variety ESPO went up to $ 73 per barrel.

What sanctions did the West impose

Since December 5, 2022, the EU introduced an embargo for oil supplies from Russia, providing for several countries that receive oil through pipelines, extra time to refuse supplies. Also, the EU, the Big Seven, Australia and Norway introduced a ceiling of prices for Russian oil. This measure prohibits Western companies to maintain and insure sea transportation of oil in third countries if it is sold more than $ 60 per barrel. Since February 5, the embargo and the EU ceiling for oil products have earned.

The discount of the Russian Urals variety to the North Sea Brent decreased to $ 23 per barrel. After the sanctions in December at the peak, he reached almost $ 40. Thanks to the reduction in the discount, the Ministry of Finance managed to collect more taxes - it was not necessary to use the maximum discount , since for April it was indicated at the level of $ 30.

The revenue of exporters in April compared to the last month, according to the IEA, increased by 13% to $ 15 billion. But this is still 27% less than in the record 2022.

The budget was eliminated from superprofits

In April, the situation in the oil market for Russia became noticeably more favorable, but it is still unknown how this will affect the revenues of the state. Most of the taxes for April enters the budget with a delay - NPP for sold in April is paid in May. In addition, in the future, the market conditions may change.

The data for the previous months show that oil and gas revenues continue to fall, and this has a serious impact on the growth of budget deficit. Moreover, if oil supplies in the first quarter were reduced by 12%, then the budget revenues from exports fell by 38% immediately (compared with the average value in 2022).

According to the calculations of the Kiev School of Economics, in the first quarter of 2023, Russian companies earned $ 39 billion in the export of oil and oil products - $ 29% less than in the previous quarter. According to economists, the drop in revenue in approximately equal shares occurred by reducing prices in the world market, increasing discounts on Russian oil and reducing exports.

The problem with oil and gas income at a meeting with Vladimir Putin was recognized by the head of the Ministry of Finance Anton Siluanov. “So far, we see that they, taking into account the conjuncture, taking into account all discounts, are still behind the plan,” the minister said.

In the first four months of this year, the fall of oil and gas revenues compared to the same period of 2022 amounted to 52% (2.5 trillion rubles). As a result, the budget deficit reached 3.4 trillion rubles, which is already 400 million more than the planned deficit for a whole year. In total, in 2023, the Ministry of Finance planned to receive 8.9 trillion rubles of oil and gas revenues, that is, in four months the lag behind the plan is approximately 600 billion rubles.

Oil and petroleum products cut Russia from superprofits that it received in 2022 due to price increases, Oleg Buklevshev, director of the Center for the Support of Economic Faculty of Economic Policy of the Economic Faculty of the Economic Department of Moscow State University, in a conversation with the “Novo-European”. At the same time, although the income from oil and oil products this year is much less than in the past, in the first quarter they were still even more than in 2021.

There is no clear picture of what will happen to oil and gas income by the end of the year, Buastleyshev notes. The situation will depend on market prices, new sanctions and actions of the Russian government.

In addition, according to a number of economists, Russia has accumulated about $ 100 billion in shadow reserves. This is a third of the income of Russian companies from exports over the past year: they are invested in various assets and are stored in banks abroad, including in Europe. They accumulated due to the fact that the real value of Russian oil was higher than the one by which companies pay taxes to the budget.

“For example, with a discount of $ 20, as a rule, only $ 5 is at a discount to the seller, the rest is distributed into two more directions. The first is the increased expenses for the transportation of oil to Asia, and the second goes to traders, since most of the oil is resold through intermediaries. According to a common assumption, Russian companies control a significant part of the freight and trading abroad. It turns out that the price of the shipment, which the Ministry of Finance focuses upon taxation, is not all the revenue of companies, ”says Belogoryev.

Now this money is used to pay for parallel imports, weapons, and can also be transferred to Russia if the state introduces additional tax fees, the economist Oleg Itskhoki told New-European.