Shipping and Oil refining companies receive super profits from sanctions
2023.02.08 08:00
Shipping and Oil refining companies receive super profits from sanctions
By Tiffany Smith
Budrigannews.com – State oil revenues have decreased significantly as a result of Western sanctions against Russia, and tens of billions of dollars have been diverted to shipping and refining companies, some of which have connections to Russia.
At least 20 people who work in trading and banking said that China, India, Greece, and the United Arab Emirates are home to the majority of the winners from the sanctions. A few of them are owned in part by Russian businesses.
Despite the fact that none of the businesses are in violation of sanctions, they have benefited from measures enacted by the European Union and the United States to reduce the revenues of what they refer to as the “war machine” of Russian President Vladimir Putin.
Despite sanctions, calculations indicate that Russia’s income has decreased but export volume has remained relatively stable as the Ukraine conflict enters its second year.
Putin informed the West that sanctions would lead to an increase in energy prices. Instead, international benchmark prices have dropped from a near-all-time high of $139 per barrel in March 2022, just weeks after the war started, to $80 per barrel now.
Brent traded between $65 and $85 per barrel prior to the beginning of Moscow’s invasion of Ukraine on February 24, 2014.
Russia’s finance ministry reported that Moscow’s oil export revenues decreased by 40% year-over-year in January following the imposition of a price cap on Russian oil by the Group of Seven (G7) industrialized nations.
According to a statement made by Sergey Vakulenko, a non-resident fellow at the Carnegie Endowment for International Peace, “low official oil price meant that the Russian state budget has suffered in recent weeks.”
Former head of strategy Vakulenko worked for Gazprom, a major Russian energy company (MCX:). Neft. He left the company and Russia just a few days after the war started.
He continued, “Based on the customs statistics, refiners in India and China captured some of the benefit, but the primary beneficiaries must be oil shippers, intermediaries, and the Russian oil companies.”
The United States and the European Union are prohibited from buying Russian energy and from shipping Russian crude anywhere in the world unless it is sold for at least $60 per barrel, making these sanctions against Russia the most severe ever imposed on a single nation.
By offering buyers in China and India substantial discounts compared to competing grades from the Middle East, for instance, Russia has diverted the majority of its crude and refined products to Asia.
Buyers have been wary as a result of the price cap and shipping ban, and Russia has been forced to pay for crude transportation because it does not have enough tankers to transport all of its exports.
According to at least 10 of the traders who are involved in operations and an invoice that was seen by Reuters, Russian oil companies were offering discounts of $15 to $20 per barrel for crude to buyers in India and China as of the end of January. Due to the sensitive nature of the matter, all of the sources requested anonymity.
According to the 10 traders and the invoice, Russian sellers have also paid shipping companies $15 to $20 per barrel to transport crude from Russia to China or India.
According to the Russian Finance Ministry, Russian companies received only $49.48 per barrel of Urals at Russian ports in January, down 42% year-over-year and just 60% of the European Brent benchmark price.
In contrast, shipping a cargo to India would cost between $5 and $7 per barrel for a US exporter of Mars crude, which is of a grade comparable to Urals. A U.S. exporter would receive approximately $66 per barrel at a U.S. port, or 90% of the benchmark price, at a discount of $1.6 per barrel compared to WTI.
Producers’ revenues would fall by tens of billions of dollars in 2023 due to the discount and additional costs, with output of 10.7 million barrels per day (bpd) and exports of crude and refined products of 7.0 million bpd in 2022.
According to Fatih Birol, the head of the International Energy Agency (IEA), the price cap cost Moscow $8 billion in revenue just in January.
However, it is difficult to quantify the exact impact on producers’ and the state’s earnings due to Russian businesses capturing some lost revenue.
The fact that some Russian oil grades, such as Pacific grade ESPO, are also worth more than Urals makes matters even more complicated.
Some intermediaries’ higher profits have coincided with lower revenues, according to Vakulenko and traders in Russian oil.
Moving Russian oil is boosting the global shipping industry’s finances after decades of low profits or losses.
These businesses include the Russian state shipper Sovcomflot, which is run by Sergei Frank, a close ally of Putin, as well as the Greek shipping companies TMS Tankers Management, Stealth Maritime, Kyklades Maritime, Dynacom, Delta Tankers, NGM Energy, and New Shipping.
Fractal Shipping, which has owners in Dubai, purchased some of the older Greek and Norwegian tanker ships at record prices.
Despite Washington’s pressure, Saudi Arabia and the United Arab Emirates have expanded their cooperation with Moscow and refused to condemn Russia’s war in Ukraine.
The profits made by any shipping companies from Russian oil have all been withheld from public discussion.
According to the Reuters invoice, a shipper paid a Russian crude seller close to $10.5 million for a single trip in January to transport a 700,000-barrel regular-size Aframax tanker from a Baltic port to an Indian refinery.
A seller of Russian oil would have spent between $0.5 million and $1 million on a similar journey a year ago, depending on shipping costs.
In today’s market, such a voyage has a running cost of $0.5-1.0 million for the shipper, resulting in a possible $10 million net profit for the shipper from a single voyage.
The tanker industry was characterized as “crazy good” by a Russian crude trader.
Refineries in India and China have also benefited greatly from substantial discounts, despite the fact that tanker owners charge record-high rates for Russian crude shipments.
In recent weeks, India’s imports of Russian oil have reached an all-time high of more than 1.25 million barrels per day. This means that India has saved more than $500 million per month on its oil bill because Russian oil is sold at a discount of about $15 per barrel.
Discounts and profits were not discussed by IOC, HPCL, BPCL, Nayara, or Reliance, the most prominent Indian importers.
Russian state oil major Rosneft, run by Putin’s ally Igor Sechin, owns 49% of Nayara, so Russia gets a piece of the profits indirectly. Rosneft didn’t say anything about its role in Nayara or how it could get some of its profits back.
According to Emma Li, a China analyst at Vortexa Analytics, between April 2022 and January 2023, China imported more than 1.8 million barrels per day of oil from Russia.
According to Reuters’ calculations, that saved Chinese refiners approximately $5.5 billion over the course of ten months based on an estimated $10 per barrel discount for both ESPO and Urals crude on a delivered basis.
The largest beneficiaries were independent refiners in Shandong, an eastern province. China’s state-owned Sinopec (OTC:) The cheaper oil also helped the company, as did state-owned Petrochina, Zhenhua Oil, and CNOOC (NYSE:). traders stated that they made money trading the barrels.
The Shandong provincial government and all of the businesses did not respond to a request for comment.
