Filling a vacuum created by a large-scale embargo on Russian hydrocarbons does not appear obvious. But between the immediate repercussions and the longer-term substitution effect, the heart swings.
The question of replacement arises. For the Americans, who gave the impetus to the momentum, Russian oil accounts for only 8% of imports and 4% of consumption of petroleum products. According to oil industry analysts, there is talk of a shortfall of 700,000 barrels per day (bpd). According to industry analysts, two-thirds of this shortfall would be made up by internal adjustments and one-third by increased shipments from Canada using existing pipelines and railroads.
But when it comes to replacing just under 8 million bpd of oil and refined products, or nearly 10% of global supply, the issue is quite different. The Organization of the Petroleum Exporting Countries (OPEC) current excess capacity is estimated at some 4 million bpd, including 2 million from Saudi Arabia. An OPEC which, moreover, vibrates strongly under the influence of Russia within the enlarged cartel.
Proof of the complexity of the issue, diplomatic maneuvers are attempted with the Venezuelan President, Nicolás Maduro, sworn enemy of the United States, who dispute his legitimacy, and close ally of Vladimir Putin, it is recalled. This against the background of talks with Iran on the nuclear treaty, in the context where the talks are delayed by new Russian demands and the treaty, negotiated more bitterly given the new balance of power conferred on Iran by the surge in oil prices.
On the United States side, The Economist quotes American producers evoking a capacity increase of 1.5 million bpd over an 18-month period which, however, comes up against distortions in the supply chains, which risk slowing down the return to production. And while it is necessary to wonder about a reengagement of investors in shale oil after the absorption of heavy losses in the past, in a context of environmental disavowal.
As for the strategic reserves of OECD countries, the International Energy Agency has already argued in favor of a withdrawal of 60 million barrels. Too little, says a former member of the Agency, who estimates instead that 120 million barrels should be tapped in several bursts, at the rate of 2 million bpd.
Limited effect
This has a short-term effect on Russia which wants to be rather contained for the moment. It should be remembered that China and India are not participating in the embargo operation. Moreover, most buyers and brokers are already refusing to receive Russian energy, which does not prevent Russia from selling part of its oil on the parallel markets at deep discounts. According to the experts consulted by The Economist, 3 million bpd could thus be diverted to these new buyers. According to data from Nestle Data quoted by the evaluation firm Morningstar, the discount granted in relation to Brent was approaching US$20 a barrel on March 3. It was US$5 a barrel before the outbreak of war and zero at the beginning of February.
Destruction of the request
There remains the impact of soaring oil prices on economic activity and inflation with, as an ultimate depressive effect, a risk of “demand destruction” which could become real if reference prices exceed US$150. the barrel and stay there. A full-scale embargo on Russian petroleum products would have the potential to push that price to US$200 this year, according to Bank of America’s scenario. Producers fear that this contraction in demand will accelerate the withdrawal of fossil fuels and fuel a race for other energies.
This is the ambitious bet that the European Union would like to take up, with Brussels aiming for a two-thirds reduction in European imports of Russian gas by the end of the year and an elimination of the import of Russian hydrocarbons “well before 2030”.