The fate of the war in Ukraine and the ability of Russia in order to be able to withstand the economic consequences of the conflict and the western sanctions petroleum. When it comes to the big issue of Russian energy, which is primarily (and inevitably) connected to the large gas fields in the hands of the Kremlin and the resulting negotiating power in the settlements, Moscow’s black gold has been left out of Europe for some time. But oil, even if considered almost secondary in international logic, plays a role that should not be underestimated, significantly affecting Vladimir Putin’s game in this complex period of Russian history and his leadership, which began with the decision to invade Ukraine can affect.
For a power that bases its economy on hydrocarbon exports, the price of hydrocarbons is a central element of its strategic agenda. The interaction of supply and demand and the resulting price equilibrium is perhaps an essential key to understanding the political dynamics and also the decisions of a government. Russia fits perfectly into this pattern and also for this reason the trend of oil price it can be an important litmus test for Moscow’s present and future.
Some recent data are food for thought. For example, the Gazette reports how oil futures fell for a few days “after economic data released Monday added concerns about a slowdown in China to fears of a European recession and confirmed the price decline linked to the global economic outlook.” The issue is also of fundamental importance for Putin, because if the price decline becomes constant, it will mean a change of course for his own country’s coffers, which are rooted in commodity exports and exports energy. For now, the most succinct impact ofEuropean Union embargo on Russian oil, as the sanctions come into effect at different times and in a way that avoids a total halt. Moreover, and this is an equally important point, Russia was able to take advantage of the huge demand from the Asian giants, especially China and India, and somehow managed to redistribute the unsold oil to certainly very demanding customers, but at reasonable prices.
However, the situation does not appear to be sustainable over a very long period of time for two reasons. Basically, it is a purely economic problem in which the energy deduction compared to i Asian countries it can only make sense in times of high world market prices. In the event of a further drop, it is clear that an exporter will not be able to confirm a favorable price, risking his earnings falling too much. In addition, the oil market seems uncertain, both because of the future of the EU embargo, which according to some analysts will reduce Russian production by more than a million barrels a day, both because of the global economic slowdown, and because of Asian countries themselves “raked” as much as they could, taking advantage of the war. But this hunt for Russian barrels of oil could be slowed down by both India and China. Finally, the scenario is based on an analysis by Bloombergwinter it seems very different from the summer, also because it is assumed that the internal reaction of the Russian refiners to make up for the lack of external purchases cannot continue in the following seasons. And most importantly, it cannot replace purchases from European countries. The impression, therefore, is that much will depend on how European sanctions on the black gold kick in, with Moscow likely hoping for a rethink from the EU given the rising costs gas.
For the Kremlin and its hydrocarbon giants, the key right now is therefore to bet on the sanctions front on Asian customers and on a (though not complete) line change in Europe. As Agi writes, Russia is increasing forecasts on oil production and exports anyway by focusing on Asian buyers. Demand from China and India also supported the price recovery for the time being.
But from this point of view, the hypothesis of a trip by the Chinese leader should not be underestimated Xi Jinping in Saudi Arabia which according to some media would be a matter of days. According to a source quoted by the Jerusalem Post, the visit “will lead to the signing of several economic agreements on a range of assets, notably energy and food security.” A possible use of the Chinese currency rather than the dollar in oil transactions between Beijing and Riyadh has been discussed for some time, and many point out that this visit could be a signal to Washington rather than Moscow. China’s Foreign Ministry has not confirmed (or denied) the rumors about Xi’s trip, at least until last week, also because the People’s Republic’s president has not left his country since January 2020. What is clear, however, is that increased Saudi involvement in Chinese oil supplies could also be of interest to Russia, particularly in the event of a full or renewed activation of the European embargo.