The geostrategic situation that unfolded following the declaration of “Special Military Operation” by Russia, and the outbreak of what must be considered a high-intensity conflict in Europe, brought a wave of strong sanctions declared against Russia. This has had really significant consequences on the oil market.
A seemingly reversal? Moscow quickly rejoiced at the success of the turning point it has implemented and which it calls the “turn to the East” for its exports—and in particular its oil exports—to the East and the South. Officials claim this more than compensated for the loss of the European Union market. This is what was called in the press in Russia the “turn to the East” or the “Pivot to the East.” And, in a sense, there is reason when we remember the weight of European customers.
“Sanctions” have never been able to have an impact on either the trade balance or the current account. Russia has never been faced with the risk of disappearance of its client portfolio. However, this constituted one of the main threats implicitly contained in the sanctions. The Russian government, with the support of major operators on the oil market, was thus clearly able to avoid the shock.
The increase in exports of petroleum products to India has thus been spectacular, with a 5-fold increase in volume, compared to the figures for 2021. Afterwards, it must be admitted that we often see the case of a re-export to the European Union. Many tankers thus arrive in Spanish ports but also French ports with “Indian” oil that is really Russian oil. The capacity of the “turnaround” was, therefore, in reality limited and seems to be partly due to a diversion of import flows. This results in a limited drop in sales prices below market prices and an increase in sales prices for the benefit of Indian intermediaries, who were the major beneficiaries of this operation. To say that there was no turn toward the East is undoubtedly excessive.
Russia's new allies. In this capacity for resistance, Russia was profoundly helped by the solidarity shown toward it by the group of OPEC countries. This is something that we have not noticed in recent years and which marks a profound change in the geopolitics of hydrocarbons. This is undoubtedly one of the most spectacular changes to occur in the course of 2022 and 2023 and which erases in importance the previous “pivot towards the East.”
Relations between the United States and Saudi Arabia were arguably at an all-time low. President Biden, to try to find support from Saudi Arabia for a possible drop in oil prices (the objective was apparently to reach a price of $40/bbl which would have posed a real fiscal problem to Russia) reneged on his previous statements made in the context of the Kashogi Affair and rushed to Riyadh. It was a complete failure. The United States was met with rejection.
A few months later, we learned of the decision of Saudi Arabia and Iran to submit their candidacies as part of one of the turning points in foreign policy. The year 2023 was, therefore, this rather unprecedented moment when we saw several oil-producing countries—including Saudi Arabia, Iran, and the United Arab Emirates—decide to secede from the United States to join a bloc of countries more or less supporting Russia.
This says a lot about the new capabilities of Russian, but also, undoubtedly, Chinese diplomacy. When the accessions were made during the BRICS Summit held in Johannesburg, the impact of these “cartelization” decisions was rightly pointed out. It gave the BRICS countries extensive responsibilities but also allowed Russia to gain new room to maneuver.
What was anticipated and what was not. So, we must return to the founding principle of BRICS. Was Russia hoping in January 2022 that a large number of countries would coalesce around BRICS, which would allow it to circumvent sanctions? Probably yes. But that this coagulation would have this impact, that it would force the United States to use its strategic reserves to seek to limit the impact of the cartel, was clearly unexpected.
The first year of the war was thus marked by colossal export gains. In turn, 2023 was more mixed, but this was mainly due to a rise in Russian imports that returned to their 2021 level, and to downward pressure in oil prices, Table 1. It is in this context that we must analyze the decision taken by the countries of the “OPEC+” group to reduce their production volume.
This type of policy had already been applied several times. Here, it seems to want to be long-term, and it is already giving substantial results because the price of a barrel seems to have risen above $80/bbl and stayed there. However, we must keep in mind the fact that for the Russians, they must accept various intermediation costs. Building sustainable channels for circumventing sanctions, and in particular trading procedures through the use of companies that agree to take risks, all this is at a price. But Russia also has shown its ability to gradually reduce its intermediation costs.
Overall, Russia's ability to establish itself for a long period in a complex market seems to be one of the country’s strengths. For relatively low investment, these prices can be quite decisive for the construction of infrastructure. WO
SAPIR@MSH-PARIS.FR / Jacques Sapir is a professor of economics at the School for Advanced Studies in the Social Sciences (EHESS) in Paris, and at the Higher School of Economics in Moscow. An expert on Russian economic policy, he graduated from the Institute of Political Studies in Paris in 1976, and earned a PhD in economics from EHESS in 1980.