This Is How Russian Oil Will Reach Europe and Continue To Finance Putin’s War.
The embargo on Russian oil can be bypassed via India.
In theory, the Europeans will no longer buy oil produced in Russia. The EU-27 have decided to reduce their imports by 90% by the end of 2022 for crude oil and by the beginning of 2023 for refined products such as diesel. In reality, it will not be so clear-cut, because it will be impossible to know where the oil processed into fuel comes from before being sold in Europe. In the coming months, European motorists will probably fill up with diesel imported from India and produced with Russian oil. Here's why.
Many Western buyers have already turned away from Russian oil since the war began. Oil companies, insurers, transporters ... some of them fear being indirectly affected by the American sanctions, and they are preparing for the entry into force of the European embargo.
Russia has had to find other customers, offering a big discount to sell its exports: up to 35 dollars off a barrel of Brent crude oil that is worth 110 dollars. Indian refiners jumped at this tempting offer.
While India imported virtually no crude from Russia last year, tankers unloaded nearly 1 million barrels a day in April 2022, according to Kpler, and another 800,000 a day in May 2022.
Russia will become India's largest supplier in June 2022, overtaking its traditional sources of supply such as Iraq, Saudi Arabia, and the Emirates. This change is made all the easier by the fact that the qualities of Russian oil are close to those of crude oil produced in the Gulf. Refiners do not need to adapt their production process.
The discount on Russian oil is so attractive that it more than compensates for the higher transportation costs. It takes between four and six weeks to get from the Baltic Sea to India by ship, while the journey from the Persian Gulf takes less than a week. The price offered by Russia also makes it possible to absorb a higher insurance premium.
A scheme deemed acceptable by Europeans and Americans
For the Indian refiners, it is a windfall that inflates their margins. It is an obvious economic calculation for them. Once Russian oil is refined, it will become virtually impossible to distinguish refined products from others on the international market. It is therefore very likely that Russian oil will continue to flow to the West despite the embargoes, after a long detour through Indian refineries.
Europe could import gasoline, diesel, and other products from India that will be mixed with oil from Russia. We should start to see fuel exports from India increase in the next few weeks.
Does India risk trouble with the West by moving closer to Russia for its energy supply?
Joe Biden raised the subject with Indian Prime Minister Narendra Modi in April 2022, stressing that it was “not in the interest” of New Delhi to buy more Russian oil ... without going so far as to formally request anything.
For the Europeans and Americans, this risk does exist, but it is an acceptable one because it is a transfer of wealth from Russia to India. This does not call into question the effectiveness of the sanctions, Russia is well penalized. Washington and the Europeans will let it happen.
In any case, there is almost no flexibility left in the oil market and almost 20% of world exports are under sanctions: Russia, Iran, and Venezuela, not to mention the difficulties in Libya and Kazakhstan. The fact that Russia can continue to export its oil softens the shock, it prevents the barrel from soaring to 180 dollars. Nobody wants to enter a recession or an uncontrolled social shock.
As you can see, while the West continues to be extremely tough publicly on Russia and its war in Ukraine, many countries are still looking to preserve their economic interests which will allow Vladimir Putin to continue to finance his odious war in Ukraine.
It would have been better if India had not jumped on this opportunity of cheap Russian oil and joined the Western sanctions, but India certainly seeks above all to preserve its interests in the current configuration. A bit like all countries after all.
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OIl price daily is reporting that tankers with Russian oil are offloading in Veracruz, Mexico. PEMEX has excess refining capacity and the uS is a large customer. My guess is that Russian products are entering the US market with the Mexicans making a tidy profit.