Russia is Earning More Than Ever From Fossil Fuels. What's Going On?

Russia is Earning More Than Ever From Fossil Fuels. What's Going On?

Russia is earning more from fossil fuels now than it was before the war in Ukraine began. It still bodes well for renewable energy. What’s going on? 

Here are some of the most salient points from an excellent report by the CREA (1).

Russian fossil fuel exports are down… BUT revenues are up

  • The record-high oil prices are fuelling Russia’s coffers. While export volumes are down, revenues have grown roughly 33% since May 2021.

Several countries have made great strides in reducing their dependence on Russia

  • The United States, Sweden, Lithuania, Egypt, Spain, Finland, Poland, Estonia, and Japan have all reduced their imports of Russian fossil fuels by 50% or more since the beginning of the year.
  • Crude oil imports into the EU fell by 18% in May.
  • EU gas imports from Russia fell have fallen 30% year-on-year in May.  

But there are always those who find dubious opportunity in times of hardship

  • Russian fossil fuels are heavily discounted right now. Its crude oil is currently fetching roughly 30% below international market prices. This has some countries rubbing their hands in glee. 
  • India, France, China, the UAE, and Saudi Arabia (don’t they have their own oil) have increased imports from Russia.
  • India is the most spectacular. Before the invasion of Ukraine, India’s share of Russian crude exports was 1%. It now takes 18% of Russia’s crude exports. 
  • But maybe India isn't that bad. They have a large population, many of whom are impoverished. What is the is impact of sky-high oil prices on them? If you have any data on this, I'd love to know. 

Ships and sanctions

  • Because Russian oil is going further (to India, for example, instead of the EU), more tanker capacity is required.
  • Currently, EU vessels can ship Russian crude oil. In April and May, 68% of deliveries of Russian crude oil were made with ships owned by EU, UK, and Norwegian companies.
  • A proposal by the EU and UK to prohibit insuring vessels that carry Russian oil is still in the works. As a vast number of ships are insured in London, this would greatly limit Russia’s capacity to export its oil.

Good things often don’t happen overnight

Sometimes you end up going backwards before you go forwards: short term pain for long term gain so-as-to-speak. It certainly seems this way with Russian oil revenues!

  • On the basis of current European commitments, 93% of Russian oil sales to the EU are due to be eliminated by the end of the year.
  • The record-high fossil fuel prices and the commitments to reduce reliance on Russian oil have motivated greater action for both energy efficiency and clean energy in Europe.

Sometimes a shock (burning platform in business school speak) is required to motivate change. There is no doubt that renewable energy will be one of the beneficiaries of Russia’s brutal invasion of the Ukraine. I’m super excited to see this evolution.

1 Centre for Research on Clean Energy and Air