How the EU Ban Will Impact Moscow’s Exports Elsewhere

• The EU’s upcoming ban on Russian oil will likely complicate Moscow’s exports.
• This is because Russia will likely be more dependent on Asia in order to sell its oil. It will also mean that trade routes will take longer. 
• Here’s what the EU embargo entails – and how it will impact Russian oil exports elsewhere. 

The European Union’s ban on Russian seaborne crude is just two weeks away – and it’s set to complicate Moscow’s energy exports. 

Russia has already diverted more goods to Asia as a result of the embargo, in order to compensate for its loss of Europe as its largest buyer.

This means that there are many potential disruptions, including longer shipping routes, a squeeze on tanker demand, higher crude and freight costs, and increased shipping costs. These risks have forced Russia to look for shorter routes via Arctic Circle to transport oil to Asia.  

The ban, which was intended to punish Moscow for its invasion in Ukraine, takes effect December 5. The ban will prevent EU tankers transporting, financing and insuring Russian oil shipments. This could mean that deliveries to Indian buyers, for instance, could take up to 10 times longer.

Here are the potential consequences of the EU embargo on Russian oil exports. 

Russia looks to Asia 

Moscow is scrambling for alternative buyers, as crude oil shipments to northern Europe dropped by 92% over the four weeks leading up to November 18. This indicates that continental importers have already reduced their dependence on Russian oil. 

Russia has been exporting record volumes of oil to Asia, including India, in an effort to compensate for the loss of demand. India has made Russia the top-ranked crude supplier to India, surpassing Saudi Arabia and Iraq. In September, its energy exports to China increased 22% year-over-year.

Insider was told by Viktor Katona, an analyst at Kpler, that “One thing we can almost be certain of is Russia’s pivot toward Asia will become more and greater evident.”

He said that Russia would no longer be permitted to transport its crude oil into the Mediterranean (exports to northwest Europe are already tangible) and the Asia-bound flows would only increase.” 

Longer shipping routes

Russia’s growing dependence on Asian buyers has led to a shift in the shipping dynamics. Oil cargoes going to India and China have to travel thousands of more miles than those traveling to Europe. 

“With more Asian crude and product discharges from Russia, the average voyage length will increase.” Katona stated that while a Russia Baltic-Rotterdam trip took approximately 6-7 days, a journey from the same Russian port in India would take 35-40 days.

Tanker demand

This could lead to a higher demand for long-range tanksers. Russia may be faced with more logistical challenges as a result.

Analyst at Kepler Cheruux Anders Redigh Karlsen told Bloomberg that it could be as much as five to six times the distance. That means that you will need more ships to transport the volume you import previously. “This will drive demand for product tankers.”

In the shipping industry, rising freight rates are already a result of tight tanker demand. Bloomberg reported that earnings from the shipping industry’s benchmark route was above $100,000 this week, which is the highest figure since early 2020. 

These challenges have led Russia to look for shorter shipping routes to Asia. This week, President Vladimir Putin spoke out about Russia’s “Arctic strength” by launching two nuclear-powered Icebreakers to benefit trade with Asia.

It just sent an oil tanker ice-breaker to China via Arctic Circle, which is the shortest route between Europe & east Asia.

This comes at a crucial time for oil markets, as OPEC+ reportedly mulls a crude production increase of 500,000 barrels. Saudi Arabia however has denied the claim.

The decline in crude oil prices over the last five months has been caused by recession fears and China’s COVID-19 policy. Despite OPEC+ reducing its production in an effort to support prices, it has seen a decline in crude prices. Brent crude has fallen 9% since the announcement by the oil group in October.