Russia may be getting more revenue from its fossil fuels now than shortly before its invasion of Ukraine, as global price increases offset the impact of Western efforts to restrict its sales, U.S. energy security envoy Amos Hochstein told lawmakers during a hearing on June 9.
“I can’t deny that,” Hochstein told the Senate Subcommittee on Europe and Regional Security Cooperation in response to a question about whether Moscow was making more money now off its crude oil and gas sales than a couple of months before the war started.
The United States and the EU agreed to ban imports of Russian oil and imposed escalating sanctions to punish the country for its invasion of Ukraine.
While those moves put a chill on global trade in Russian fossil fuels, they also helped to trigger a surge in global prices of oil and gas. Prices for Brent crude on June 9 were near a three-month high above $123/bbl.
Hochstein said the global oil demand increase from consumers coming out of the COVID-19 pandemic was “far greater, stronger than anyone predicted.”
At the same time, Russia has been able to sell more cargoes to other buyers, including major energy consumers China and India, by offering it at a discount to oil from other origins.
Hochstein said that while those Russian sales to China and India have been discounted compared with supplies from other countries, the global market price surge means Russia’s revenue is likely higher now.
The International Energy Agency (IEA) said in May that Russia’s oil revenue was up 50% since the beginning of the year to $20 billion a month, with the EU taking the biggest share of its exports. The EU’s ban on Russian oil, expected to take full effect at the end of the year, could cut that revenue.
India's purchases of Russian oil more than doubled in May from the previous month to hit a record high above 840,000 bbl/d and will likely rise again in June, according to commodity analysts Kpler.
Hochstein said he has asked Indian officials not to purchase too much Russian oil, and told them the United States cannot ban its purchases of the crude because it has not imposed secondary sanctions on those sales. Hochstein said he believes there is a “ceiling” to how much oil India will buy from Russia, without providing details.
When asked about his view on imposing secondary sanctions on countries like India, Hochstein said the most important thing is reducing Russia’s revenue while mitigating the impacts of soaring fuel prices at home and on allies.
Hochstein praised new EU sanctions that target insurance of cargoes carrying Russian oil. “We'd like to see how we can use those sanctions to affect the broader market beyond the U.S. and Europe so ... nobody's profiteering.”
While Russia provided about 45% of the EU’s natural gas last year, Hochstein has been working to decrease that dependency by encouraging the diversion of shipments to the EU of LNG from the United States, Qatar and Australia. In the first four months of the year U.S. LNG shipments to Europe jumped 18% from the 2021 annual average.
Cutting Europe’s fossil fuel demand will also help reduce dependency on Russia, and the United States is working with U.S. private companies and others to boost the region’s use of smart thermostats to increase efficiency in heating and cooling, Hochstein said.
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