EU sanctions and US mega profits

(To Antonino Lombardi)

These days, some sources of information1 report that Russia plans to cut its oil exports from Western ports by 25% in March compared to February.

The measure will be taken in order to try to raise oil prices. Moscow had previously announced it would cut its oil output by 500.000 barrels a day for the month of March after EU import limits were imposed on February 5. This would have been equal to 5% of its production or 0,5% of global oil production. If confirmed, these latest plans to cut supply by up to 25% would see up to 625.000 barrels a day removed from Russia's oil exports.

In December 2022, the EU had already capped the price of Russian oil at $60 a barrel before lowering it again to $45 a barrel a few days ago. Since December 5, the European Union, as well as the United States and Great Britain, have agreed to ban member countries from buying, importing or transferring Russian oil with the exception of limited quantities exported overland to Hungary, Slovakia and the Czech Republic through Druzhba (pipeline that supplies Poland, Germany, Hungary, the Czech Republic and Slovakia, ed.).

The limit of 60 dollars a barrel is intended to drastically reduce the Kremlin's revenues and consequently the funding for the war in Ukraine.

The prohibition of European Union on purchases of Russian petroleum products ed price limits really complicate the Russian market? We can certainly say that the ceiling on the price of oil has managed to reduce Russian receipts but without blocking Russian supplies globally, causing a significant increase in the price.

It seems that Moscow is not having too many difficulties in redirecting its crude oil previously destined for Europe to other countries such as China, India and Turkey. Since the beginning of the conflict and the loss of the market with Europe, Moscow has been operating strong discounts on petroleum products by entering into agreements with, in particular, China and India, becoming the largest buyers of Russian oil.

In India, for example, Russian oil imports reached a record level of 27% of the total or 1,4 million barrels per day in January, representing an increase of 9,2% compared to December 2022.

In the United States, however, crude oil production has trended upwards in 2022. According to the'Energy Information Administration (EIA), crude oil production was its highest in August 2022 at 11,87 million barrels per day. Nearly three-quarters of this production was obtained from shale deposits in the region Lower 48.

In 2019 Russia represented the second largest exporter of crude oil constituting 45% of the revenues of the 2021 budget and, before the start of the conflict in Ukraine, Europe imported from Moscow 4 million barrels per day equal to 34% of total imports.

Certainly Russian profits have been drastically reduced even though the Downtown of Agriculture Research e Environment (CREA) estimates that Moscow's income is still around $688.3 million a day. The EU ban on Russian seaborne crude oil imports and the G7's imposition of a price cap cost Russia an estimated $171.8 million a day. Western measures contributed to a 17% decrease in Russian oil and gas export revenues in December 2022. Despite this, Europe became the largest importer of Russian oil in December 2022 showing that, in spite of sanctions and of the statements, European states may not be able to function without massive imports of crude oil from Moscow.

Russia also exports through African markets, and there has been a significant increase in Russian oil exports to that continent over the past year. Last December Moscow sent 214.000 barrels a day of petroleum products to Africa (mainly Tunisia, Morocco and Nigeria), roughly three times as many as in December 2021 and this figure will probably increase following the latest bans imposed by the EU.

In all this, theand major oil companies are posting their biggest annual profits ever. Over the course of 2022, the big five oil companies more than doubled their profits from a year earlier. ExxonMobil it posted the highest profits to date for any Western oil company at $59,1 billion. Shell announced the largest profits in the company's 115-year history, Chevron e Total Energy they established unprecedented box office grossing tens of billions of dollars. This was possible thanks to the sharp increase in the price of oil caused, as just described, by the Russo-Ukrainian war.

The energy crisis that arose as a result of the conflict should have laid the foundations for an acceleration of the energy transition process but so far only enormous profits have been recorded for the fossil fuel industry, seeing the objectives of the Paris agreement still far away.


Photo: ExxonMobil