Will the United States succeed in ousting Russian energy resources from the markets? Analysis

US President Donald Trump continues his attempts to oust Russian oil and gas from world markets and replace them with his own supplies. Currently, maximum pressure is being exerted on India, which is being demanded to completely abandon Russian oil under the threat of maintaining 50% duties and possible additional measures from the EU. Whether the United States will be able to squeeze Russian energy resources out of the international market and how supplies are being diversified is in the analysis of Izvestia.

The Oil market Trade war

• In order to oust Russian energy resources from the market, the United States is increasing pressure on the largest buyers of Russian oil — China and India. The United States has demanded that EU countries impose duties of up to 100% against India and China for the purchase of Russian oil, but Europe has not yet given its consent to such measures. The main importers of Russian Urals oil in the European Union itself are Hungary and Slovakia, the share of Russian oil consumption in these countries is equivalent to 3% of fuel demand in the EU.

• Washington has warned India that in the event of a complete abandonment of Russian oil, duties on the supply of Indian goods to retailers in the United States will be halved to 25%. For New Delhi, which is experiencing a decline in domestic consumption, this is a significant discount, because the main impact of US duties fell on those industries where most of the population is employed.

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• Amid growing U.S. pressure, the largest private port operator, Adani Group, which manages 14 ports in India, has banned tankers from sanctioned countries. Indian importers began demanding that Russian sellers increase discounts fivefold, which is why some suppliers redirected tankers to China. Despite this, experts doubt that India will decide to completely abandon Russian fuel, since oil refineries in the country were built with the participation of Russian investments and are designed for the characteristics and quality of Urals oil (we wrote here about why it is unprofitable for India to abandon Russian oil).

• China is unlikely to abandon Russian oil supplies, despite the threat of high duties from the United States. Beijing is interested in stable supplies of energy resources, which include oil, and it receives the bulk of this fuel from Russia.

• Even such a reliable US ally as Japan is not ready to sacrifice its energy security in favor of a senior partner. Despite Japan's announced reduction of the ceiling on the price of Russian oil from $60 to $47.60 per barrel, which will become effective for new contracts on September 13, this measure does not apply to the Sakhalin Blend brand of crude oil, which accounts for 9% of the country's liquefied natural gas (LNG) imports. This oil is a by-product of LNG production at the Sakhalin-2 project, which is owned by Japanese companies Mitsui and Mitsubishi (22.5% of shares).

Power from Siberia: Russia and China launched the largest gas project in the world

The parties agreed to triple the supply, and export revenue could reach more than $27 billion per year.

Displacement of Russian gas from Europe and the "Power of Siberia"

• The United States has achieved an official promise from the European Union to completely abandon Russian gas from 2027: American LNG should replace supplies. This requirement is consistent with the EU's commitments under the European-American trade agreement to purchase $750 billion worth of American LNG, oil and nuclear energy products over three years.

• At the same time, restrictions on Russian energy supplies were excluded from the upcoming package of EU sanctions. This year, about 13% of the total LNG purchased by the European Union will be provided by Russian supplies.

• Russia's ousting from the European gas market has led to the strengthening of its ties with China. Currently, Russian LNG is the main competitor of American liquefied natural gas in the Asian market. Thanks to supplies via the Russian-Chinese Power of Siberia gas pipeline, China is currently the world leader in natural gas pipeline purchases.

• The West's plans for Russia's economic isolation have been disrupted by the news that Russia and China have signed an agreement on the construction of the Power of Siberia–2 gas pipeline. The new gas pipeline will run through Mongolia and will become the largest gas project in the world (we have discussed more about the construction of the pipeline here). It is expected that up to 50 billion cubic meters of gas per year will be pumped through it, which is comparable to the capacity of the underwater Nord Stream–1 gas pipeline, which was destroyed as a result of the terrorist attack.

Consequences for Russia

• Despite the inevitable difficulties associated with finding new ways to implement international supplies, it is no longer possible to displace Russian energy resources from the world market. In addition, American shale oil, even at cost, is much more expensive than its Russian counterpart. Additional markets for Russian fuel can be found in Africa and Asia.

• Sanctions pressure and attempts to oust Russian oil from world markets should be an impetus for the development of oil refining and chemical industry in the country. Currently, the main obstacle to the creation of new industries is a fairly high key interest rate, which has made lending to businesses too expensive, but the Central Bank has already outlined a course to ease monetary policy.

During the preparation of the material, Izvestia interviewed:

• Inna Andronova, Doctor of Economics, Professor, Dean of the RUDN University Faculty of Economics;
• Doctor of Economics, Professor of the Financial University Alexander Safonov.