A record-breaking amount of Russian oil is sitting idle in cargo ships at sea.
Vortexa, an energy data analytics company, estimated a whopping 62 million barrels of Russian Urals crude oil is currently either in transport or languishing at sea.
Embargos placed by the United States and other countries seem to have had some effect. Roughly 15% of all oil sitting on Russian ships is currently in search of a buyer, a record high. Whatever oil at sea is spoken for is likely on its way to India or China or is speeding toward Europe so that it can unload before a potential embargo by the European Union.
On May 4, 2022, European Commission president Ursula von der Leyen announced plans for the EU to ban Russian crude oil imports within six months and ban all petroleum import products by the end of this year.
The plan is still under debate, with Hungary, Greece, and Cyprus resisting. Brussels, serving as a mediator in the hope of arriving at unanimous consent, has proposed an alternative plan that features a protracted phaseout. Under the Brussels plan, Hungary, Slovakia, and the Czech Republic, all heavily dependent on oil from Russia, would have until 2024 to cut off Russian oil and gas.
The EU also seeks additional steps to prevent Russian oil from landing in restricted areas. Russia has circumvented some restrictions by transferring oil from Russian ships to other non-Russian vessels at sea. As a result, the EU wants to ban European ships from carrying Russian oil or conducting vessel-to-vessel transfers at sea. As more western countries close their markets to Russia, China’s role as an outlet for Russian oil grows. Trade between Russia and China increased by 36% in 2021, and China is eager to absorb additional energy commodities from Russia. It is already a major importer of Russian coal, oil, natural gas, and agricultural products.
China entered into a bilateral agreement with Russia earlier this year to increase trade to $250 billion by 2024, a 20% increase. It also provided Russia with $50 billion in financing to help build a 2,450-mile pipeline that could serve as an important conduit for future energy sales to China. Nevertheless, it is unclear whether China could offset Russia’s loss in energy sales.
Russia has been reducing oil production due to financing issues and the inability to secure enough buyers. As a result, the current bottleneck of Russian oil at sea should eventually return to typical levels as supply diminishes and Russia finds alternate buyers.