EU's crude imports from Middle East, Africa up as deadline to phase-out Russian oil nears

By Nuran Erkul Kaya

ISTANBUL (AA) - European Union's (EU) seaborne crude oil imports from the Middle East and Africa have increased prominently as the bloc is trying to end Russian seaborne crude imports by the end of year as agreed in the sixth package of sanctions on Russia.

The EU's sanctions package adopted in June enforces a complete import ban on all Russian seaborne crude oil and petroleum products, covering 90% of the current oil imports from Russia.

The ban has been subject to a certain transition period to allow the sector and global markets to adapt and a temporary exemption for pipeline crude oil, which applies to flow via the Druzhba pipeline carrying about 800,000 barrels per day.

The sanctions have come into force with immediate effect as the transition period lasts till the end of the year for seaborne crude while it is two months longer for petroleum products.

Last year, the EU imported €48 billion ($48.9 billion) worth of crude oil and €23 billion of refined oil products from Russia, according to the European Commission.

The sanctions package also allows exemption for some member states, however those states will not be able to resell such crude oil and petroleum products to other member states or third countries.

"Due to its specific geographical exposure, a special temporary derogation until the end of 2024 has been agreed for Bulgaria which will be able to continue to import crude oil and petroleum products via maritime transport. In addition, Croatia will be able to authorize until the end of 2023 the import of Russian vacuum gas oil which is needed for the functioning of its refinery," the European Commission said in the sanctions package.

As the war enters its seventh month, the EU's efforts to reduce dependency on Russian seaborne crude reflects on the figures.

According to real-time energy cargo tracker Vortexa, Russia's share in the EU's seaborne crude imports fell to 10% by Aug. 21 while Europe's total oil import dependency on Russia dropped to 25% from above 40% before the Ukraine war.

Europe's four-week average daily crude oil imports are currently 10.6 million barrels per day, up 650,000 barrels of oil daily from the Q1 average, according to the compilation by Vortexa Chief Economist David Wech.

- Phase-out process could create volatility in oil prices

About 2.5 million of this amount is coming from European imports.

Russian crude to the EU has dropped to 1.1 million barrels per day, down by 550,000 barrels daily. Kazakh crude via Russia to the EU is currently 800,000 barrels per day, down by 140,000 barrels.

Europe is importing around 1.4 million barrels of crude per day from the Middle East, 600,000 barrels up daily while 2.6 million barrels per day from Africa, 200,000 barrels up daily.

Europe is taking 1.54 million barrels of seaborne crude per day from North America, up by 140,000 barrels, while 600,000 barrels from South America, up by 240,000 barrels daily.

Most of these imports go into the Netherlands and Italy, while Bulgaria, Romania and Poland are further relevant buyers. Other European countries have essentially ended importing seaborne Russian crude oil, down from 700,000 barrels per day in the six months before the Ukraine war started.

"Replacing the remaining 1.1 million barrels daily Russian crude oil should be relatively easy, given abundant nearby sources, with Russia likely to struggle more to find alternative outlets on top of India and China," Wech said.

OilX Senior Analyst Neil Crosby said Russian exports to OECD Europe in August is showing a month over month uptick but this figure is 500,000 barrels daily below levels observed in January.

"But this masks a regional divergence with north-west Europe still phasing out slowly but steadily while some Mediterranean destinations have seen a sizeable uptick for the moment," he said, adding that the northern Druzhba line should also be drastically reduced.

Crosby said that there has been no signal that the intention to phase out has changed materially and that means it should expect significant disruption in trade flows and probably also volatility in oil prices in late 2022 and early 2023 as the phase out progresses.

"We do expect some Russian oil to be lost from the market as the phase out progresses and inevitably there will be some impact on prices as a result," he underlined.

- Different story for Russian diesel

Despite the decreasing seaborne crude imports from Russia as agreed in the sanctions package, Russian diesel exports to the EU are on rise.

"The story is very different for diesel. Russia alone accounts for more than 50% of external supplies and it is difficult to increase volumes from alternative suppliers like the US, the Middle East and India," Wech said. "All these markets are already producing and exporting diesel at close to record levels, but regional demand is limiting the available volumes for Europe."

He noted that the only way would be a massive reshuffling of flows, where Russian barrels meet requirements in LatAm, Africa and the Middle East, while the freed-up supplies would move to Europe.

Thus, it is questionable whether Europe will really manage to forgo Russian diesel imports in the first months of 2023.

EU's Russian diesel imports are currently about 700,000 barrels per day.

Year-to-date diesel imports are 220,000 barrels per day higher from Russia than from non-Russian sources, while in the pre-Covid-era, Europe actually imported 65,000 barrels daily more diesel from non-Russian sources than from Russia, Vortexa data showed.