The activation on February 5, 2023 of the second phase of the European boycott of Russian oil exports completes the “bombardment” of Russian energy, which began almost the day after the Russian invasion of Ukraine and ended with the introduction of measures that essentially destroyed the main – until February 2022 – market for the absorption of Russian oil .

In fact, unlike the boycott of Russian oil exports that took effect on December 5, 2022, there will now be no exception for any European country, except for Croatia, where the exception is partial and is valid for about a year. At the same time, from February 4, the EU, Australia and the G7 countries introduced a ceiling on the export of Russian oil products, which will be carried out on behalf of countries not participating in the anti-Russian boycott through non-state Russian tankers that will use customs services and mainly cargo reinsurance (P&I Insurance) from Western companies.

The ceiling for low-end products is set at $45 per barrel, and for higher quality products such as high-octane gasoline and diesel, the ceiling reaches even $100 per barrel. The strategic logic behind all these boycotts and restrictions, which has particularly angered OPEC and Saudi Arabia, is that imposing restrictions will cut Russia’s revenues and losses in European markets will cut Russian exports.

It is assumed that these two goals complement each other, but in fact everything is exactly the opposite, unless, of course, someone is found who will replace the withdrawn Russian exports with an increase in their own production. The problem, of course, is that Saudi Arabia, and secondarily other OPEC countries that have excess production capacity to replace Russian oil, are doing just the opposite. They remove oil from the markets, clearly demonstrating solidarity with Russia.

So far, Russian exports have shown remarkable resilience. Last year, despite the boycotts announced in Europe since May 2022, the Russians managed to catch up, first of all in Asia and secondly in Africa, most of the market shares lost in Europe, increasing their net profit by 20% compared to 2021.

According to IEA data recently published by the New York Times, the Russian state received $218 billion from oil exports and $138 billion from natural gas exports last year (an increase of 80% compared to 2021). And the Russian National Wealth Fund, which acts as a store of excess oil and gas exports, had about $150 billion in early 2023, about 50% of its $300 billion Russian central bank assets that are “frozen” in Western countries. . .

The problem is that Saudi Arabia, and secondarily other OPEC countries that have the production capacity to replace Russian oil, are doing just the opposite.

In 2023, Russian oil exports suffered losses, but not dramatic ones, and what they lost in volumes, they more than made up for in profits due to very high prices, which will largely determine the success of the cap mechanism in 2023. Remarkably. that the IMF estimated last week that the US Treasury Department’s enforcement mechanism would not have a negative impact on Russian oil revenues, even projecting Russia’s GDP growth of 0.3% in 2023.

The same cannot, however, be said with equal certainty about Russian exports, which covered almost 40% of Europe’s diesel needs last year, supplying the EU as a whole with 700,000 bpd. These exports are equivalent to approximately 11% of all Russian oil exports in 2022. The reason is not related to the better functioning of the ceiling mechanism. Asian oil-refining powers, primarily India, import huge volumes of Russian oil both for their own needs and for export, and it will be difficult for them to make room for Russian oil products.

Degree of re-export of Russian products to the EU. from North Africa and the Persian Gulf cannot be ruled out, but that alone will not solve Moscow’s problem, which will have to compete with Asia’s largest importers of Russian oil for a share of Asian oil markets and Africa.

the EU itself is not expected to face an immediate problem until at least May, when the period of peak seasonal demand begins. The 5 February boycott has a transitional opening period of 1 April for cargoes of petroleum products loaded onto tankers before 5 February, while all major European consumers had significantly increased their diesel imports prior to the boycott. Over time, Asian and US refineries will fill the shortage of Russian diesel fuel in the EU, but this will come at the cost of a clearly increased cost of 15-25%, which, however, will remain manageable while it remains in the dormant COVID-19 of the Chinese economy. .

Dr. Theodoros Tsakiris is Associate Professor of Geopolitics and Energy Policy at the University of Nicosia.