Key Takeaways
In spite of western sanctions on Russia, Putin has successfully been able, thus far, to continue to find alternative markets for Russian crude.
China now relies on Russian oil for close to half of their oil imports.
Uninhibited access to China’s oil market, and to other sanctioned East Asian nations such as North Korea, would be an opportunity for Russia to escape sanctions and OPEC+ mandated oil cuts – such an opportunity would provide a greater funding pipeline for their war in Ukraine.
Co-Authored by Russell Baker, Summer Intern
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As a result of Putin’s full-scale invasion of Ukraine, the United States and the European Union have implemented numerous energy sanctions on Russia, one of the most sanctioned nations in the world. The EU prohibited the import of seaborne crude oil and petroleum products from Russia, has banned Russian coal imports, liquefied petroleum gas (LPG), and over 1 billion euro worth of mining and refining tech. As part of the united front against Russia, the United States ceased all imports of Russian oil beginning in 2022 and restricted any investment into Russian energy companies or any foreign companies that do business in Russia’s energy sector. As access to western markets has been blocked by sanctions, the Russians are grasping at the opportunity to grow their economic ties with their neighbors to the east, specifically, China and Iran. A strengthened partnership between Russia, China, and Iran, could create a newly expanded eastern market for Russian oil that could eventually rival the US in production. Revenues could increase both production and consumption capabilities of Russia and Iran while meeting demands of China and other East Asian countries such as North Korea.
Since the beginning of the Russia-Ukraine war, the U.S. and other western European nations have increased the number of sanctions on a heavily sanctioned Russia. As a result, Russian oil exports have migrated away from Europe, as their crude oil sales have fallen to about 4-5 percent. Now, 90 percent of Russia’s crude exports have gone to China and India. Before the sanctions, Russia exported 4.5 million barrels per day in the year of 2021. China now relies on Russian oil for close to half of their oil imports. Since the invasion of Ukraine, Russia and China have deepened their relationship with expanded trade, including the oil markets. According to CNN, the Russians were responsible for providing 107.02 million metric tons of oil to the Chinese, which is equivalent to just over 2 million barrels per day, making them their largest oil supplier. The Chinese are not the only new Russian partners as the war with Ukraine and the sanctions that followed has pushed Russia into deeper talks with Iran. More recently, Iran and Russia are rumored to have brokered a 20-year deal that would give Russia access to oil and natural gas drilling on and offshore of the Caspian Sea. This deal is expected to be signed in the “near future” according to a Russian deputy from Moscow. Both countries intend to benefit heavily in the coming months, as both Russia and Iran stand to gain $3 billion in economic trade.
Furthermore, the heavily sanctioned Russian oil industry uses their expanding “dark fleet” ships that intentionally turn off their automatic identification system in order to smuggle illegal cargo. In addition to turning off their location, the identification system can be used to fool monitors to display the ships in a place where they are not. Now, the Russians have learned how to evade Western sanctions when moving oil and LNG. If the rumor of this massive oil deal is true, it would dramatically shift the paradigm in the Middle East and Asia to favor an increasingly brazen Russia. It was reported that China saved 10 billion dollars by purchasing crude oil from both Russia and Iranian oil sales. In fact, China is supplying the Russians with “more than $300m worth of dual use items-those with both commercial and military applications.” China and Russia’s bond is only becoming stronger despite hiccups along the way – this can be seen through the last eight years as Russian imports and exports with China have increased by over $80 million.
Economically, a greater oil alliance, and dependency, with China, would be of great value to Russia and Iran. In fact, Iranian oil revenues have reached a five year high just from Chinese consumption alone. China, who is second behind the US in oil consumption, would benefit tremendously from a strengthened alliance with both Iran and Russia, with the intention of persuading the two heavily sanctioned countries to export more oil to East Asia. In Russia’s case, uninhibited access to China’s oil market, and to other sanctioned East Asian nations such as North Korea, would be an opportunity to escape sanctions and OPEC+ mandated oil cuts – such an opportunity would provide a greater funding pipeline for their war in Ukraine. This past June, the Russians had exceeded oil production requirements called for by OPEC+, but have ‘pledged to meet its obligations in the future.’ Whether or not the Russians are to be relied upon within OPEC+ is unknown and up for debate. Although an expanded Russian oil market would pose new geopolitical challenges, at least for the time being, American oil production will continue to play a crucial role in the global market going forward. The US Energy Information Administration projects US oil production will continue to rise in 2024 and 2025, and is set to more than double Russia’s output by the end of the year. Due to the war in Ukraine, the US has provided Europe with 50 percent of their LNG, compared to only a quarter before the war according to Politico. The exports jumped from 133 million barrels to 212 million from 2019 to 2022, nearly an 80 million barrel jump in three years.
Conclusion
In spite of western sanctions on Russia, Putin has successfully been able, thus far, to continue to find alternative markets for Russian crude. Deeper ties with China and Iran have proven extremely vital to the Kremlin, and their relationships seem only to be growing stronger. Russia’s newest defense pact with North Korea, which will have the North Koreans supply them with missiles as long as they are engaged in trade, and Russia will come to the defense of North Korea in exchange, demonstrates Russia’s brazen willingness to do whatever they deem necessary to further their interests. In an era of expanding East Asian trade and new diplomacy, Russia stands to profit from their new relationships with new markets for their oil. Such action will prove challenging for the United States as a Russia with greater ties to China, Iran, and North Korea, combined with increased oil revenues, stands as yet another threat to both American hegemony in East Asia, and to the relatively unipolar system that has existed since the collapse of the Soviet Union in 1992.
