![]() ![]() Natural gas is used for home heating, for power generation and in industrial production. and European Union sanctions originally deliberately excluded Russian energy exports.Īnother dimension in which the current event differs from historical precedent is that the reduction in Russian oil exports was preceded by a cut in Russian natural gas exports to Europe. This outcome was largely unanticipated, as U.S. In addition, oil tanker rates for Russian destinations rose to record levels, reflecting public pressure on oil companies to avoid purchasing Russian oil, fear of official sanctions on Russian energy exports at a later date and attacks on vessels in the Black Sea. In contrast, the main reason Russian crude oil and refined product exports have been at risk since Russia’s invasion has been the refusal of financial institutions to back such transactions. Traditionally, oil supply shocks arose because of civil unrest in oil-producing countries or because military conflict resulted in the destruction of oil-production facilities, as in the case of Iraq’s invasion of Kuwait in 1990. How this oil supply shock differs from earlier shocks Buying oil for storage is not prohibited under current sanctions. Instead, trading houses are purchasing the oil and keeping it in commercial storage in Europe, from where it may be potentially resold, bypassing financial sanctions. What changed is that much of the Russian oil that continues to be exported from Baltic and Black Sea ports at steep discounts is not delivered to refiners, as is customary. Recent data from Energy Intelligence, however, indicate that the fall in Russian petroleum exports to date has been somewhat smaller than the initial estimate of 3 mb/d and coincided with oil price weakening after March 8. With early reports pointing to a significant disruption in Russia’s petroleum exports, along with the prospect for even greater disruptions in the near future, it is not surprising that the price of West Texas Intermediate crude oil surged to about $120 a barrel in a matter of days following the invasion. Russia’s main customers include Belarus and China as well as countries in the Organization for Economic Cooperation and Development. ![]() It is also a major exporter to world markets, exporting about 5 mb/d of crude oil and close to 3 mb/d of petroleum products ( Chart 1). Russia accounts for about 10 percent of global petroleum production. In the immediate aftermath of Russia’s invasion of Ukraine in late February, early estimates suggested that perhaps 3 million barrels a day (mb/d) of petroleum production-almost 3 percent of world production-had been effectively removed from the global oil market, constituting one of the largest supply shortfalls since the 1970s. Economists Marc Giannoni, Lutz Kilian and Michael Plante discussed developments in energy markets in a virtual town hall on March 29.
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