MOSCOW, August 6. /TASS/. Rejection of Russian oil supplies from the side of China and India currently buying about 80% the same is not possible in the short term because the market is unable to substitute these volumes, experts told TASS.
The unlikely scenario of abandoning Russian oil would result in an oil price spike above $100 per bbl that contradicts interests of all market players, including the US, experts noted. Analysts assume a temporary increase of a discount for Russian oil and extra logistical costs upon introduction of secondary sanctions by the United States.
US President Donald Trump threatened earlier that the US would set import tariffs of about 100% against Russia and its trade partners if no agreement on settlement in Ukraine is managed to be achieved within fifty days. The US leader reduced the period later to ten days.
Limited effect of secondary sanctions
Dmitry Kasatkin, the Partner at Kasatkin Consulting, reminds that China and India are buying more than 80% of Russian oil in total. If these countries continue ignoring US demands to halt Russian oil imports, the effect from secondary sanctions would be limited, the expert said. Secondary sanctions may operate through pressure on logistics and payments, which may lead to greater costs of supplies, Kasatkin said. "It may mean that Urals will be traded again at the level of $50-55 per barrel even against high Brent prices ($85-90 per barrel) during the adaptation period. Logistics and sales infrastructure will be readapted in 2-3 months and the discount will return to its current figures," he noted.
The effect of new US sanctions may be expressed in a short-term increase of the discount on Russian oil, Finam analyst Nikolay Dudchenko said. The effect from Trump’s statements is already reflected in current oil prices, he noted. "There was no significant upsurge of the price. It means that market players are not confident in balance shifting towards lower supplies. Furthermore, we saw a small price dip after official statements of the Indian government regarding purchases of Russian energy resource," the expert added.
"As it has already been many times since spring 2022, we believe new potential sanctions of the US will not affect Russian exports and oil production volumes and the negative impact will be reflected in the temporary expansion of discounts for Russian oil," Kirill Bakhtin from BCS Investment World said.
Potential substitution of Russian oil
Trump said the US would increase oil production volumes in case of disruptions in the world market after imposition of tariffs on Russia and its trade partners. Experts doubt the possibility of substituting Russian supplies.
Russian oil currently holds about 9% of the global market and the full-fledged and quick replacement of such volumes is not possible, Kasatkin stressed. "Saudi Arabia and the UAE theoretically have the reserve capacity but they will use it only within the OPEC+ strategy. Iran and Venezuela are under sanctions. The US has limitations for incremental growth of production in the short term," he noted.
Tough implementation of secondary sanctions without consideration of the market balance may lead to a deficit in the oil market, the expert added.