U.S.-Africa Win, Europe Loses if Russian Energy Sanctioned

By Pat Davis Szymczak, April 22, 2014

U.S. and African oil exporters may benefit if the West were to sanction Russia’s oil and gas sector, as international tensions continue to build over Ukraine. The EU would hurt as much as Russia, however, and the expected spike in international oil prices would plunge the world back into recession.

That was the conclusion of Platt’s experts who discussed Russian sanctions and European oil markets in a webinar broadcast Tuesday over the Internet.

Stuart Elliott, Associate Editorial Director, European and African Oil News pointed out that while current sanctions imposed on individuals have shaken “confidence in the financial system,” as yet “nothing has been done to impact the oil market.”

However, that could change, as it appears that the unraveling of last week’s agreement in Geneva is now making “the possibility of further sanctions very real,” Elliott said. “(U.S. President Barack) Obama and (U.S. Secretary of State John) Kerry have both said the energy sector is something they want to target.”

“There has been some mention of Gazprom itself,” Elliott said. “But Obama and Kerry are aware that any restrictions (on the purchase of Russian oil and gas) will push up oil prices and it would certainly plunge the world into recession. Any move against Russia will affect the western world.

“The EU is divided and is going to struggle with reaching a consensus,” he continued. “The EU and Russia are very dependent on each other.”

Elliott and his colleague, Andrew Bonnington, Platt’s Editorial Director – European and African Oil, pointed out that when the U.S. and EU introduced measures in 2009 making it difficult to buy crude from Iran, oil prices rose to $147 per barrel, plunging the world into recession.

Attempting to rein in Iran’s nuclear program, the EU banned purchases of Iranian oil completely. The United States locked the financing of such purchases out of the U.S. financial system, forcing even buyers in China, Japan, India, Turkey and South Korea to find other sources of supply, Bonnington said.

Russia exports refined products such as diesel and naphtha as well as crude oil to Northwest Europe out of the ports of Ust Luga and Primorsk. “Primorsk (a Lukoil terminal) is the most important strategic port for Russia,” said Bonnington. “Their April loading program was 4 million tons of crude oil, and 600,000 to 700,000 tons of Russian diesel is shipped out of Primorsk monthly.” Buyers of high quality Russian diesel include Germany, France, the UK and Spain. Fuel oil and refinery feed stocks such as vacuum gasoil (VGO) and straight run fuel oil are shipped out of St. Petersburg and Baltic ports, some of it even ending up in the United States.

In the south, Russia exports 600,000 to 700,000 tons of crude a month from the Black Sea port of Novorossiysk to southern European refining centers along the Adriatic and Mediterranean as well as via the Persian Gulf to Africa, Bonnington said.

The view from across the Atlantic Ocean however is different. “With regard to middle distillates,