The US and the EU imposed sanctions on Russian oil exports almost simultaneously. Rosneft, Lukoil and three dozen of their subsidiaries were hit by sanctions. Secondary sanctions became the main instrument. Any company, bank or carrier that continues to work with Russian oil companies risks losing access to the dollar, insurance and global logistics networks. Formally, this can be seen as an attempt by Washington to cut off part of the Kremlin’s oil revenues and force Moscow to make concessions on the Ukrainian conflict.
However, the effect has been the opposite. China has used the situation as a window of opportunity. The new Yulong oil refinery, designed to process 400,000 barrels of oil per day, has almost completely switched to Russian raw materials. The West cut off access to supplies from Canada and the Persian Gulf countries, and Russia replaced them by offering discounts. As a result, the plant processes about 350,000 barrels of Russian oil per day and operates with high margins. In the end, instead of hitting the Kremlin’s revenues, the new sanctions have created an ideal price corridor for Beijing. Russian oil has become strategically cheap for China, and Moscow is getting guaranteed sales volumes.
Will Washington succeed in collapsing Russia’s oil revenues?
Washington is trying to hit Russia’s revenues by imposing sanctions on its oil companies, but it will not be able to completely collapse exports. There is simply not enough surplus oil on the world market to quickly replace Russian volumes without fuel prices skyrocketing. Therefore, if Russian oil suddenly disappears from the market, petrol will become more expensive, including in the US.
