EU ban on Russian oil product exports will reconfigure markets, change trade flows: IEA

Banner Image

The EU's ban on Russian oil product exports on Feb. 5 will transform markets and change trade flows in a manner more complex than the impact of the sanctions on seaborne Russian crude that came into force on Dec. 5, chief energy economist at the International Energy Agency said Jan. 11.

"We need to be very watchful because the reconfiguration in global trade implicit in that oil product ban is going to be significantly more complex than what we have seen already on the crude side," Tim Gould said at the 13th Global UAE Energy Forum organized online by Dubai-based Gulf Intelligence.

"When it comes to products, it's a more complex situation because as we are all aware, China and India are both oil product exporters, so you are not going to have the same, in a sense, safety valve for oil products as you do for crude."

The G7 slapped a $60/b price cap on Russian crude alongside EU's own embargo on seaborne Russian crude exports on Dec. 5 in response to the invasion of Ukraine.

"We are going to need to have a very complex reconfiguration of flows also in the Atlantic Basin with Europe taking more from Middle Eastern suppliers and from North America, and then potentially Russian oil product exports finding a home in parts of Latin America or in Africa," Gould said.

"None of that is simple, there are quality specification issues. There are all sorts of tankers and storage issues that would make that very complicated."

More resilient

European refiners turned to crude grades from Norway, the US, Saudi Arabia, Guyana and Azerbaijan in 2022 to plug the growing gap left by Russian imports sidelined by Western sanctions on Moscow, according to tanker tracking data.

Russian seaborne crude imports into the EU, Norway and the UK shrank by 80%, or 1.36 million b/d, in November and December compared to pre-war levels of 1.71 million b/d, according to data from S&P Global Commodities at Sea.

The IEA is forecasting Russian output will fall by 1.4 million b/d in 2023 due to the impact of EU sanctions and the G7 price cap.

"When we look at oil markets, it is undoubtedly true that Russian production and exports have been more resilient than we initially expected, but of course there are big changes afoot," Gould said.

"It feels unlikely that we will get back to the way things were before in terms of Russia's relationship or position in the international energy world."

G7 price cap

Analysts at S&P Global Commodity Insights expect only minimal impact from the West's seaborne crude sanctions on Russian output. Russian supply losses could peak at 930,000 b/d below pre-war levels in March due to pending sanctions on fuel exports before production rebounds 400,000 b/d by the fourth quarter of 2023.

Russia estimates that its oil output may fall 5%-7% in 2023 as a result of the sanctions.

The G7 price cap is another factor that will impact Russian exports in 2023, Gould said.

"We are watching very closely to see the extent to which traders and shippers are incorporating that (G7 price cap) into their decisions already for crude in December," Gould said.

"There is a large degree of uncertainty how this plays out, but I think certainly it is going to be a big factor in the markets in 2023."

Other wild cards in 2023 are the oil demand outlook as a result of China's lifting of COVID-19 restrictions despite a resurgence of the virus and the shape of the global economy, he added.

The IEA expects global oil demand to grow 1.7 million b/d to 101.6 million b/d in 2023, with nearly half of that increment coming from China. Most of the 820,000 b/d oil demand growth in China in 2023 is expected to come in the second half of the year.

IEA's SPR arsenal

The IEA is also keeping the release of oil from strategic stocks as an option in 2023, Gould said.

In 2022, the US initiated the largest drawdown in the history of its Strategic Petroleum Reserves, injecting 905,000 b/d into the market from mid-April through October, with additional drawdowns by other IEA nations raising global SPR flows to about 1.4 million b/d over the same period, according to S&P Global.

The Joe Biden administration announced the SPR drawdown as it sought to shore up global oil supplies, help Europe curb its dependence on Russian oil imports, and ease domestic energy prices contributing to the highest US inflation in 40 years at the time.

"There are still substantial stocks available to IEA member countries that can be deployed in case of necessity, and you can imagine that we will continue to keep a close eye on market developments and potential disruptions this year," Gould said.

"That part of the arsenal is still very much intact. Some countries will look to replenish those stocks as and when it's prudent to do so."


  • Shipping

Related content


Interactive: Seaborne trade in Russian oil under G7 price cap

(Latest update: June 11, 2024) Russia, one of the world’s largest oil suppliers, has increasingly turned to non-Western firms to transport its crude to overseas buyers during its ongoing war with Ukraine . With a dual goal of undermining Russia’s war chest without creating significant disruptions to global supplies amid inflation pressure, G7 countries and their allies have banned tanker operators, insurers and other services firms from facilitating seaborne Russian crude exports unless the barrels are sold for no more than $60/b. The price cap regime, which came into force Dec. 5, 2022, does not directly cover tankers flagged, owned and operated by companies outside the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs. While such ships tend to be older and less maintained, their share in Russia’s crude exports market has been rising in recent months amid strengthening prices of Urals -- the OPEC+ member’s flagship crude grade -- and tightening sanctions enforcement by the West. Non-price-capped tankers have a larger market share in shipping Russia’s Pacific crude exports, according to analysis of S&P Global Commodities at Sea and Maritime Intelligence Risk Suite data. Crudes such as Sokol, Sakhalin Blend, and Eastern Siberia–Pacific Ocean grades are more often involved in these trades than Russian barrels from Baltic or Black Sea ports like Urals. Tanker operators in Greece, Europe’s top shipowning nation, managed to keep their traditionally strong market position in Russia in the first few months since the price cap took effect before giving ways to their peers in the UAE, Russia, China and Hong Kong. Related content: Interactive: Global oil flow tracker


Interactive: Platts global bunker fuel cost calculator

The Platts global bunker fuel cost calculator shows how Platts price assessments for methanol, ammonia, LNG, bioblends and conventional oil-based fuels can be used to calculate the cost of marine fuels around the world, taking into account the EU Emissions Trading System and adjusted for energy density to put them on an equal footing. Click here to explore in full-screen mode. This interactive will be demonstrated at our shipping forum in Posidonia on 4 June, 11.15-12.45 EEST. Click here to learn more about our forum at Posidonia.


'LNG dark fleet' could emerge to transfer Russian gas amid sanctions: Flex LNG

Russia could be building an "LNG dark fleet" to transport natural gas cargoes in the face of Western sanctions, taking a page from its own playbook in shipping crude and petroleum products, shipowner Flex LNG said May 23. While existing sanctions on shipping Russian LNG have been limited and focused mostly on restrictions on buyers, the US and UK have sanctioned Novatek's Arctic LNG 2 project with a total planned production capacity of 19.8 million mt/year. The EU is now mulling similar measures that could widen curbs to include re-exports of existing Russian LNG supply from its ports. The project developers of Arctic LNG 2 were originally planning to build around 21 Arc7 icebreaking LNG carriers specialized to operate in icy conditions, but the 172,600-cu m vessels' construction has been hampered by sanctions and their fates were uncertain . Arctic LNG 2, initially scheduled to be commissioned in phases between 2023 and 2026, has not been able to start LNG production due to the shortage of ice-breaking ships and could turn to existing tonnage to meet export requirements, Flex suggested in its quarterly report. Currently, around 15 icebreaking LNG ships are serving Novatek's Yamal LNG project. A potential scenario is that those vessels would also be carrying cargoes from Arctic LNG 2 to non-icy waters for transshipment to conventional ships, which then sail to overseas buyers. This would lead to additional demand for LNG carriers, especially if the EU's proposed sanctions on Russian LNG also get approved. As secondhand activity for old ships involving opaque firms has reportedly picked up, Flex CEO Oystein Kalleklev said in a conference call: "This could potentially be the start of our LNG dark fleet ... They will have to do more ship-to-ship transfers." TradeWinds reported little-known companies based in Vietnam, China and the UAE were buying old tonnage recently, with some deals fetched at high prices. "[They] may be soaking up some of the steam [turbine] tonnage that would otherwise be scrapped," Kalleklev said. Sanctioned trades The secondhand sales have been reported even as Russia accumulated a large number of oil tankers via shell companies or in coordination with opaque firms -- many of them based in other countries -- since its invasion of Ukraine in February 2022 to bypass the Western oil embargo and the G7 price cap, according to market participants and government officials, often calling them the "shadow," "gray" or "dark "fleet. A joint study by S&P Global Commodity Insights and S&P Global Market Intelligence found that 591 tankers as of April were either confirmed by Western authorities to have violated sanctions or at high risk of breaching them, accounting for just over 10% of the global trading fleet. "Russia is planning to do something similar to what we have seen on the oil and petroleum side," Kalleklev said. The Oslo- and New York-listed company's warning comes as the EU is discussing its 14th package of sanctions against Moscow, which might include measures intended to restrict re-exports of Russian LNG that landed at EU ports to other markets. It is not clear whether such a measure would target ship-to-ship transfers, which could take place in international waters. The EU saw its Russian gas and LNG purchases fall from 155 Bcm in 2021 to 80 Bcm in 2022 and to just 43 Bcm last year, according to European Commission data. But there won't be any EU-wide ban on Russian imports for now, as member states are to be allowed to decide on how to limit import levels individually. Even if the EU was to reduce purchases of Russian LNG significantly, the cargoes would flow to "willing buyers" in Brazil, India, China and South Africa, resulting in longer sailing distances, Kalleklev said. Ton-mile demand could increase in this scenario. Platts, part of Commodity Insights, assessed the charter rate for a Tri-Fuel Diesel Electric LNG carrier in the Atlantic at $36,500/d and two-stroke carrier rates at $47,500/d on May 23.


Niger's maiden crude cargo set to load from Benin's Seme

Niger's maiden crude cargo is set to load at Benin's Seme port, according to sources and shipping data, turning the landlocked African country into an oil exporter less than a year after a military coup. Data from S&P Global Commodities at Sea showed the Front Cascade, a 1 million barrel capacity Suezmax, sitting just outside the Seme terminal in preparation to dock, as of 1330 GMT. Its destination was listed as a single point mooring registered to the West African Oil Pipeline (Niger & Benin) Company (WAPCO), a subsidiary of China National Petroleum Corp, which constructed the Niger-Benin pipeline. "Front Cascade tanker [is] now loading at Seme for the first cargo," a source told S&P Global Commodity Insights on May 17. The imminent loading marks the startup of the 110,000 b/d crude pipeline, which will pave the way for a massive increase in Niger's oil production and make it a significant exporter. Currently the arid, landlocked country produces just 20,000 b/d of crude from its Agadem Rift Basin, which is primarily used domestically due to the lack of an export route, but it is ready for an immediate ramp-up of output to fill the new pipeline. The pipeline is expected to start up at 90,000 b/d before ramping up to full capacity, sources said. "This is a major milestone in Niger's economic history -- akin to the development of uranium mining in the 1970s," said Jim Burkhard, S&P Global's vice president of oil markets, energy and mobility. "It is a notable oil market development as well -- Niger is set to become the world's newest oil exporter. And it is adding to world oil supply growth taking place outside of OPEC+." Sanctions risk The project's progress looked in doubt in 2023 after Niger's President Mohamed Bazoum was overthrown by his presidential guard, leading to punishing sanctions on the country by regional bloc ECOWAS. The measures effectively shut the Benin-Niger border, meaning a number of pumping stations were waiting for equipment stuck in Benin. However, the relaxation of sanctions in March allowed CNPC to complete construction of the 2,000 km pipeline and begin to move crude through it to storage tanks at Seme, sources said at the time. In recent days, the two governments have continued to quarrel publicly over the months-long border closure, but on May 16 Benin's government granted provisional authorization for the first ship to load Nigerien oil at the Seme platform. "They will agree on something," a source familiar with the discussions said May 13. "They both need the money." Oil is expected to become a major revenue source for Niger -- which also boasts significant uranium deposits -- while Benin will benefit from transit fees through the pipeline.