BAKU, Azerbaijan, May 5. For Russia, a loss of oil exports to the EU will hurt as these amounted to around 4 percent of GDP last year, Trend reports with reference to the UK-based Capital Economics research and consulting company.
“What matters for export revenues is both volumes and prices. Our assumption is that the volume of crude and petroleum product exports to the EU falls by 90 percent this year. They key is how much of this can be offset by higher exports elsewhere. We’ve assumed that around 20 percent of this fall is offset, so that exports to non-EU countries rise by 15 percent and total oil export volumes will be 20 percent lower this year relative to 2021,” the report reads.
At the same time, Capital Economics notes that the $35pb Brent-Urals price spread is preventing Russia from benefiting from $100pb oil.
“We think that this price discount and the loss of export volumes to the EU will knock at least $70 billion off Russia’s oil export revenues this year relative to a scenario of a typical $3pb spread and unchanged export volumes. This will leave oil export revenues at $180 billion this year. The bigger impact is likely to come in 2023 when the EU oil embargo is fully phased in, with oil revenues falling below $100 billion,” says the report.
Even so, Russia is benefiting enormously from sky-high gas prices at the moment and looks set to record a substantial current account surplus this year.
“The impact of the Urals discount and the EU oil embargo is likely to mean that oil export revenues are $2 billion or so lower this year than in 2021. In contrast, and taking into account EU plans to phase out two-thirds of Russian gas imports this year, high gas prices will boost Russia’s gas exports by $125-130 billion. That will more than double Russia’s current account surplus to $260- 270 billion (17 percent of GDP). Global commodity prices will need to fall significantly (and exports to non-Western countries fall sharply) before sanctions on Russian energy bite hard.
As for EU countries, they import one quarter of their oil and petroleum products from Russia there would be some near-term disruption and logistical challenges in replacing Russian oil. Overall, though, we think this should be achievable, particularly as the embargo has been widely anticipated, is being phased in slowly, and exemptions are likely to be made for Hungary and Slovakia,” said Capital Economics.
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