The shift of Russian exports to Asia and the role of OPEC

Russia lost 57% of its exports to EU markets mainly due to its own embargo decisions and the sabotaged loss of the Nord Stream system, without being able to replace these losses through increased LNG exports or the use of pipelines to China. After all, Russia’s ability to develop these alternative export infrastructures requires many years, given that there is no trans-Siberian pipeline network, while China’s market is supplied by different fields relative to those supplying Europe. Although Russia will build new LNG terminals in the Arctic and possibly the second Power of Siberia pipeline to China, replacing much of its European exports, this will not happen before the end of the current decade and will be on commercial terms worse than those enjoyed by Gazprom in Europe for about three decades.

The ten rounds of European economic sanctions and the Euro-American plan to impose a ceiling on Russian oil export prices, even outside the EU, are trying to unseat Russia from the position of energy superpower while creating the first-ever buyers’ cartel to try to control the prices and consequently the revenues of the world’s largest exporter of oil and petroleum products.

How Russia chooses to react to this threat to vital economic security will also change the geopolitical balance in Asia, strengthening Russia’s strategic partnership with China, but also with India, whose oil companies will gradually replace, but on more painful terms for Russia, Western oil companies, especially in terms of LNG infrastructure.

The way in which OPEC will react to this Western challenge, which has already been exporting for decades 80% of its total exports outside Europe and North America, will further strengthen the strategic alliance between Russia and Saudi Arabia, with a strong possibility of Russia’s full inclusion in the OPEC mechanism, as Russia is now permanently and almost completely excluded from the European oil markets.

The almost complete shift of Russian oil exports to Asia will reinforce the need for more regular Russia-OPEC coordination, as China, India and the fastest-growing countries of the Asia-Pacific arc already account for 80% of crude oil exports and for the countries of Middle East OPEC but also for Russia (75%). And Russia’s possible definitive accession to OPEC will more than compensate for all the losses suffered by the cartel of exporting countries in terms of its purchasing power as a result of the rise of the USA to the first position of the oil-producing states after 2014, thanks to the shale revolution. It is also very likely that if Russia eventually joins OPEC it will “pull” Kazakhstan along, thereby increasing this larger OPEC’s control from 36% to 52% of global oil supply by 2021.

This is already the case on a tactical level through the OPEC+ alliance, which is already systematically fighting through coordinated production cuts the Euro-American capping mechanism, with the aim of maintaining international prices between 80-100 dollars per barrel, so that the large Russian reductions in the sales of crude oil in Asia on the one hand to continue to bring significant income to the Russian budget and on the other hand to continue to produce what in the West we call “super profits” for the OPEC countries, despite the decline in Chinese demand, which has not yet fully recovered from President Xi Jinping’s draconian anti-pandemic quarantines.

The full inclusion of Russia and Kazakhstan in the OPEC mechanism will, quite simply, make oil more expensive and geopolitically much more precarious for the West, while the latter – and especially the EU – attempts to accelerate its transition to a energy system that will have eliminated oil from Europeans’ energy consumption by 2050.

Even if this turns out to be technologically and economically feasible, the cost of this transition with Russia fully in OPEC will be much greater, while the impact of the EU’s “de-oiling” will be relatively limited for global oil markets, given that in 2021 the E.U. together with Britain they accounted for only 12.4% of world oil consumption.

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