Russian oil heading to the EU and creating mega profits for Asian refiners

With the United States and its allies (including the EU) maintaining a ban on Russian oil, and OPEC announcing a major oil production cut earlier this month, large swathes of the world are staring down a crippling oil supply shortage.

In the United States, the Strategic Petroleum Reserve is in free fall as the Biden administration continues to drain the nation’s emergency crude oil supply at never-before-seen rates, seemingly in order to suppress explosive fuel prices in the lead up to the midterms.

In Europe, a crippling diesel shortage is just the latest threat to the region ahead of a potentially disastrous winter without sufficient energy supplies.

But for countries still willing to import Russian oil (there’s a lot, see the grey on the map below) a lucrative new industry has emerged.

Russian oil
Image from The Economist

As Dr Marcel Salikhov, the Russia Analyst for GlobalSource Partners, puts it, “One can’t mark every barrel of oil and say “Oh, this one is Russian!”

The untraceable flows of Russian oil

As much of the west turns its back on Russian oil, imports to nations such as China, India and Singapore have skyrocketed.

Salikhov says there’s two good reasons for this.

  1. Russian oil is cheap
  2. Mega profits can be made from refining Russian oil and exporting to desperate nations.

And the EU is desperate. It will be forced to increase its reliance on Asian nations, particularly China and India, to keep lights on and trucks on the road this winter.

It has little choice.

This is undoubtedly why we’ll see German Chancellor Olaf Scholz become the first western leader to travel to Beijing to congratulate Xi Jinping on his re-election as the leader of the CCP, next month.

“He will be flanked by a delegation of business representatives — a departure from his message just a few months ago while on a visit to Japan when he said German companies should diversify and not just focus on China,” writes Politico’s Stuart Lai.

Herein lies an opportunity for geopolitical gain and super profits.

“One can make a lot of money if they buy Russian oil for cheap, refine it, and then sell it at world prices. Accordingly, it’s hard to estimate whether the EU will be able to control deliveries (of Russian oil) to countries, for example China or India,” Salikhov told Novaya Gazeta.

“I think that they most likely won’t be able to (control where Russian oil flows). In any case, it will lead to a bigger discount on Russian oil.”

Schemes in existence

Salikhov uses the example of India, which continues to maintain a non-aligned foreign policy.

“India has been increasing purchases of Russian oil and shipments of oil products,” he says.

“In the last months, India exported oil to, let’s say, Europe. Then one can say that India is buying Russian oil, refines it, and sells it to Europe. But one can say the same thing in a different way too – India uses Russian oil for domestic use only, the oil it refines and sells to Europe is some other oil… But one can’t mark every barrel of oil.

“This is how, for example, Venezuelan and Iranian oil are often sold through Malaysia. They mix everything together and then say, ‘This is our Malaysian oil’ and then they deliver it to some place, such schemes exist.”

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