What has changed, though, is how many of these ships are going. There has been a large jump in the number of cargoes en route to Asia from ports in the Black Sea, the Baltic Sea and even, in one case, from the Arctic port of Murmansk. The flow of crude oil to Asian countries from Russia’s western ports has risen from zero in the weeks leading up to the invasion to 875,000 barrels a day for the first full week of April. That is almost as much as Russia’s total daily shipments to Germany, France, Greece, Italy and Britain before the invasion.
While Russian oil companies had to offer steep discounts of more than $ 30 per tonne. barrel to sell crude oil to Europe, they did not offer the same price reductions to buyers in India. However, that is likely to change as state-run oil refineries switch to privately negotiated deals in search of better terms instead of buying through public tenders.
But there is probably a limit to how much India’s refineries will buy from Russia. Increased imports of Russian crude oil will displace purchases from elsewhere, and buyers are likely to be wary of destroying relations with their traditional suppliers in the Middle East. It may put a cap on the amount they are willing to take from Russia.
There is also a question about the chemical composition of crude oil. Each crude oil is different and refineries operate most profitably when treating a specific crude oil grade or blend of grades. Increased quantities of Russian crude oil will have to displace crude oil of similar quality in terms of their gravity and sulfur content, which may also limit the quantities that refineries are able to take.
Increased crude oil flows from ports in western Russia to India and China, perhaps offset by higher flows of crude oil from the Persian Gulf to Europe, will also put pressure on tanker markets. The larger distances involved will bind more vessels for longer periods at each delivery. It takes three times as long to transport a cargo of crude oil from the Russian port of Novorossiysk on the Black Sea to Sikka in India as it takes to deliver it to Trieste in Italy.
From the Baltic Sea, which has become Russia’s primary outlet for westbound shipments, the increase is even greater. It takes a day or two to deliver crude oil from Primorsk or Ust-Luga to Finland, Lithuania or Poland, and about a week to ship it to Holland or Germany. A trip to the west coast of India takes a month, to the east coast even further. Given Russia’s pre-invasion mix of destinations for its export of crude oil from the Baltic Sea, a complete diversion of flows to India would require five to six times as many ships as are typically used. The increased demand will push up prices – good news for shipowners, but bad news for those who have to absorb transport costs.
The increase is the same for shipments from Russia’s Arctic port of Murmansk. Most cargoes make a week-long trip to Rotterdam. One is now on a month-long journey to Paradip on the east coast of India. More may be forced to follow as the EU begins to sharpen its stance on Russian oil imports.
Where else can Russia sell its crude oil?
One option is in China’s strategic warehouse if it is willing to offer large enough discounts to make the cargo attractive to the country’s price-conscious buyers. There have even been suggestions that Middle Eastern oil producers could buy cheap Russian crude oil for processing in their overseas joint venture refineries, freeing up more of their own barrels for export. Big discounts could make it an attractive offer; the quantities can be as much as 200,000 barrels a day.
But if Europe is serious about getting used to Russian crude oil, Moscow will have to find markets for much more than that. About 1.8 million barrels a day of Russian crude oil were sent to European ports before the invasion of Ukraine.
Spending more within Russia only makes sense if the country has something productive to do with it – it will require increasing industry, which seems unlikely.
Increasing sales to Asian buyers, who show no reluctance to buy Russian crude oil, is a superficially attractive solution. But it will be much more expensive for Russia than selling to high-paying European buyers right outside the door.
More from Bloomberg Opinion:
• The fragility of Russia’s fortress economy: Marques & Johnson
• Russian standard is a question of when, not if: Marcus Ashworth
• The second wave of the Russian oil shock starts: Javier Blas
This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.
Julian Lee is the oil strategist for Bloomberg. Previously, he worked as a senior analyst at the Center for Global Energy Studies.
More stories like this are available at bloomberg.com/opinion