EU has banned energy supply of Russia. Infrastructure problems, political pressure, and low demand may make it difficult for Asia to absorb diverted energy supply.
Vladimir Putin, President of Russia, sent a clear warning to the country’s energy sector officials earlier this month. Leaning forward and resting his arms on his desk: they needed to plan for a fall in Western imports by moving their attention from Europe to Asia.
That command makes logical from the Kremlin‘s perspective. The importing of Russian energy has already been prohibited in the United States, the United Kingdom, and Australia. In reaction to Moscow’s ongoing war in Ukraine, the European Union seems to be under increasing pressure from the United States and nations such as Poland and Lithuania to impose a blockade on Russian oil and gas.
Analysts believe that if Brussels does prohibit all Russian hydrocarbons, a combination of infrastructure constraints, political pressure, and weak economic demand will impede Asian markets from receiving sources of energy that would otherwise be destined for Europe. Russia sends about two-thirds of its gas and half of its oil to developed European countries.
Russian pipelines are designed to serve European markets and are unable to trade in the markets of Asia. Japan and South Korea, two of Russia’s largest Asian customers, are Western allies, to avoid any increase in energy imports, the US would very definitely exert enormous pressure. Because of COVID-19 lockdowns, China, the largest global importer of Russian oil, is experiencing a slowdown in its economy, which will further feed its want for energy.
“I don’t see how Asian markets would be able to compensate for that demand if the EU goes forward with a comprehensive prohibition,” Hari Seshasayee, a global researcher at the Wilson Center, told the reporters. “By the end of 2022, Russia may need to cut its production of oil by 30%.”
According to the German tabloid Die Welt, the EU does not have a “united view” on any energy embargo against Russia at the time, citing the bloc’s senior diplomat, Josep Borell. Germany and Hungary were among the countries concerned that if they cease buying Russian oil and gas, their energy bills will skyrocket.
Meanwhile, the EU is attempting to establish a type of payment that will enable countries to comply with both financial sector sanctions on Moscow and the Kremlin’s directive that European countries purchase their energy in roubles.
Analysts believe it will only be a “matter of time” before Europe imposes sanctions on Russian crude and products, according to Lydia Powell, a senior scholar at the Observer Research Foundation in New Delhi. According to Powell, this could eliminate 4 million gallons per day to the global crude market. Moscow has been striving to minimize its reliance on Western purchasers for some years, aware of the risks. Putin opened the Eastern Siberia-Pacific Ocean pipeline project in 2012, intending to supply crude to China and Japan.
The Power of Siberia pipeline, which was inaugurated in 2019, has the capacity to transport approximately 38 billion cubic meters of Russian gas to China. China and Russia revealed plans for yet another gas pipeline during Putin’s visit to Beijing in February, just weeks before the start of the war.
Analysts, however, believe that these activities illustrate the challenges of creating or expanding global petroleum and gas trading.
“Transport infrastructure is critical, and it is not as well developed in the markets of Asia as it is in European markets,” Filip Medunic, a research analyst at the European Council on International Policy, told reporters.
Those constraints don’t seem to be deterring Moscow from supplying gasoline at subsidized prices, and India, the world’s third-largest oil consumer, appears to be taking notice: In March, it boosted its Russian oil imports. The media reported on Monday that Russian and Indian officials met last week, and they tried to resolve an impasse over the delivery of coking coal to Indian steelmakers, which has been declining since March due to payment and logistics issues, citing a trade source and an Indian government source.
“Refiners will likely find it interesting if Russia provides reductions and favorable credit terms,” Powell said of Russian oil shipments. Furthermore, different countries generate crude with varying densities, and switching from the Middle Eastern, American, and Latin American oil that India’s older public sector refineries now use will be difficult, according to Powell. She said that some private refineries may be hesitant to offend Western consumers by using Russian crude.
Experts say that if South Korea and Japan, two of Russia’s top ten oil buyers, tried to buy more petroleum, they would face even severe sanctions from the US, their main security provider.
President-elect Yoon Suk-yeol is a new pro-American leader in Seoul, making it even less likely that it will take on Washington, according to Troy Stangarone, senior director of the Korea Economic Institute of America.
After that, there’s China. In 2020, the world’s top oil importer will buy a quarter of all Russian oil. As per Wang Huiyao, founder and president of the Chinese-based Center for China & Globalization, the country has its constraints.
Because China relied on petroleum imports, Wang explained that the country needs to maintain cordial links with all of its key suppliers and wouldn’t want to endanger those by lowering purchases from some countries to make room for more Russian oil. The country’s economic recovery has also been slowed by a prolonged lockdown in Shanghai and growing COVID 19 cases in Beijing. “There is no need for more oil in China,” Wang told the media.
Russia’s energy sector is certainly to collapse even if the EU enforces a rigorous ban. Belarus is the ninth-largest oil consumer in Russia. It is a key ally, like China, and is unlikely to join any anti-Moscow efforts.
China, Japan, India, and Vietnam have all made investments in Russia’s fossil fuels sector, with no plans to exit. Companies would be able to wait out upheavals for oil and gas reserves can last up to three decades – Chevron, for example, keeps its holdings in Venezuela despite US sanctions.
According to Seshasayee, a Wilson Center fellow, this will motivate countries and their corporations with investments in Russian fields to maintain oil and gas streaming from them.
Experts say that if Russia loses the marketplace that accounts for the majority of its petroleum exports, which account for 45% of the overall budget, the economic consequences will be severe. It will be difficult for Brussels to take such bold action, but it may only be a question of time before that party decides to end their strained relationship.
“Both Europe and Russia will want to become autonomous of each other first,” said Medunic, a foreign policy analyst at the European Council on Global Affairs.