The Americans’ plan to replace Russia’s share of the European oil market with hydrocarbons from the Middle East fails again.
While the United States continues to increase pressure on Russia, its main ally represented by Europe comes under friendly fire from the Americans. This time the EU suffered from the fuel crisis, or more correctly, from the failed attempts to resolve it.
It is no secret that European refineries work with low-sulfur (Brent and analogues) and medium-sulfur grades of oil. Previously, Russia was their main supplier, but due to sanctions, the volume dropped by more than a million barrels per day. As far as we can see from the estimates of various agencies, Russian energy has practically stopped coming to the EU as early as the first quarter of 2023. The exception was small but stable volumes on the southern branch of Druzhba, as well as deliveries to Bulgaria.
The EU introduced a price cap on Russian crude in December, and in February the restriction was extended to petroleum products. In response to these measures, Russia stopped supplying oil to countries that had set a price cap and refocused on the Asian market. Vortexa estimates that China and India accounted for up to 91% of such exports in March.
For this reason, it was decided in Brussels to replace the Russian share of oil for Europe with supplies from the Middle East, primarily from Iraq and Saudi Arabia, which produce raw materials with a similar level of sulfur content.
However, despite agreements reached with the Iraqis for deliveries of 450,000 barrels a day that went through a Turkish port in the Mediterranean Sea, the Europeans faced a month of downtime and unloaded tankers with freight debts. Iraq’s northern oil exports show no signs of resuming soon because of underlying disagreements between official Baghdad and the regional government of Iraqi Kurdistan. These contradictions go back to the time of the American invasion of the Arab Republic, which divided the country into three major factions (Sunni, Shiite, and Kurdish) and adopted a confessional model of governance imposed by the United States. In such a scenario, one official or another in Baghdad would redistribute the budget funds from oil sales to the region where the electorate that supported him is concentrated. Thus, the current Prime Minister Mohammad Shia’ al-Sudani is a lobbyist for the interests of the southern Shiite provinces, which cannot but anger the Kurdish north, whose finances are suffering due to the lack of oil revenues.
An additional aggravating factor in the uneasy relationship between Baghdad and Erbil (the capital of semi-autonomous Iraqi Kurdistan) was Ankara, which on March 25 suspended 450,000 barrels a day of Iraq’s northern exports following an International Chamber of Commerce arbitration award that ordered Turkey to pay Iraq $1.5 billion in damages for unauthorized Kurdistan oil exports from 2014 to 2018
Despite an interim agreement signed by Baghdad and Erbil on April 4 to resume northern oil exports, the Turkish and Iraqi governments have not resolved several aspects of the deal, and this has led to further delays. Contracts are still being negotiated, and the mechanism for repayment of traders’ debts remains unclear. According to the most optimistic forecasts, the resumption of exports may begin in May. However, once Baghdad and Erbil come to an agreement, the resumption of oil supplies will be entirely in the hands of Turkey, which seeks to delay negotiations ahead of the country’s upcoming presidential elections.
It would seem that the share of supplies from Iraq on a European scale is small (about a quarter of Russian products were planned to be spotted with Iraqi oil), but the reduction coincided very “fortunately” with the OPEC+ oil production limitation, including Russia. By July, they will reduce production by about 1.6 million barrels per day.
In addition, various restrictions exacerbate tensions in the medium crude oil market. This is due to the fact that Middle Eastern countries have also begun to use more of their own oil to increase refining at their new facilities. This is because they still have existing contracts with other buyers that cannot be ignored. As a result, the volume of medium sulfur crude oil in the market is falling.
As a separate threat to Europe’s fuel sector, experts single out major Asian dynasties, whose refineries, especially in China, are now increasing demand for the sought-after medium-sulfur crude produced by Russia, Iraq and Saudi Arabia. This type of feedstock is the main feedstock for Asian refineries. High competition for Middle Eastern energy resources between Europeans and Asians will undoubtedly cause prices to rise, and will also force the EU to take measures to balance the market. At the same time, Asia is likely to be able to outbid price offers from Europe, which will force the EU to face a shortage of hydrocarbons.
Thus, short-sighted U.S. policy in Iraq in the past is causing enormous damage to Europeans in the present. The situation is depressing. Thus, since January, the average profit of the European company fell by more than 70 percent – to 3.56 dollars per barrel. If earlier the logistics of oil supplies was regulated by the economy – Russia used to supply oil to Europe, the Middle East to Asia due to the short transport leverage, nowadays, to please the U.S. sanctions and contrary to common sense, Russian oil goes to Asian refineries, the Middle East – to Europe.
In the event of further negative developments, some European refineries would have to close, which would be a blow to oil refining and deprive citizens and the economy of income. Europe will have to buy oil products from the same Russian oil, but at a much higher price.