Europe's ban on Russian oil cargoes is just weeks away. Here's what's happening - and how it will bedevil Moscow's exports elsewhere.




  • In Business
  • 2022-11-27 09:00:00Z
  • By Business Insider
Oil tanker
Oil tanker  
  • A forthcoming EU ban on Russian oil is likely to complicate the movement of Moscow's exports.

  • That's because Russia will likely lean harder on Asia to sell its oil, meaning longer trade routes.

  • Here's what the EU embargo entails - and how it will impact Russian oil exports elsewhere.

The European Union's ban on Russian seaborne crude is just two weeks away - and it's set to complicate Moscow's energy exports.

The embargo has already forced Russia to divert more shipments to Asia in an effort to make up for the impending loss of its biggest buyer, Europe.

That means a raft of potential disruptions from longer shipping routes and a squeeze on tanker demand to higher freight and crude costs. Such risks have pressed Russia to seek shorter routes via the Arctic Circle to send oil to Asia.

The ban, aimed at punishing Moscow for its invasion of Ukraine, will take effect on December 5. It will bar EU tankers from transporting, insuring and financing Russian oil shipments, meaning deliveries to alternative buyers in India, for example, could take 10 times as long.

Here's how the EU embargo could impact Russian oil exports elsewhere.

Russia turns to Asia

Moscow has been scrambling to find alternative buyers after crude shipments to northern Europe fell by 92% in the four weeks to November 18, signaling continental importers are already slashing their dependence on Russian oil.

To make up for lost demand, Russia is now exporting record volumes to Asian nations, including to India and China. The country has surpassed Saudi Arabia and Iraq to become India's top crude supplier, while its energy exports to China soared 22% on-year in September.

"One thing that we can be almost certain of is that Russia's pivot towards Asia will become more and more evident," Viktor Katona, a Kpler analyst told Insider.

"Once Russia will no longer be allowed to transport its crude into the Mediterranean (exports into northwest Europe are already tangibly lower), the Asia-bound flows will only get bigger," he added.

Longer shipping routes

Russia's increased dependence on Asian buyers means a recalibration of shipping dynamics. Oil cargoes heading to India and China must travel thousands of miles more compared to the routine voyage to Europe.

"With more Asian discharges for Russian crude and products, the average voyage length will inevitably increase. Whilst a Russia Baltic-Rotterdam voyage took some 6-7 days, a trip from the same Russian port to India would be 35-40 days," Katona said.

Tanker demand

That means increased demand for long-range tankers, which could squeeze the availability of such vessels and raise more logistical hurdles for Russia.

"It could easily be five or six times the distance and that means that you'll need much more ships to transport the same volume that you imported previously," Anders Redigh Karlsen, an analyst at Kepler Cheuvreux, told Bloomberg. "That is going to drive demand for product tankers."

The effects of tight tanker demand are already being felt in the industry through surging freight rates. Bloomberg reported that earnings on the shipping industry's benchmark trade route breached $100,000 a day earlier this week, the highest since early 2020.

Such challenges have prompted Russia to seek shorter shipping routes to Asia. Earlier this week, President Vladimir Putin touted the country's "Arctic power" with the launch of two nuclear-powered icebreakers that will benefit trade with Asia.

Just this month, it sent an ice-breaker tanker of oil to China via the Arctic Circle in what is the shortest route between Europe and east Asia.

That comes at a pivotal time for oil markets as OPEC+ reportedly mulls a crude output increase of 500,000 barrels. However, Saudi Arabia has denied the claim.

Crude prices have dipped over the past five months as recession fears and China's COVID-19 policies weighed on demand. That's despite OPEC+ cutting production in a bid to support prices. Since mid-October when the oil group made the announcement, Brent crude has fallen about 9%.

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