Results of the year: the Russian oil industry has survived, but the fall cannot be avoided

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Forbes on the prospects for the further Russian oil industry operating in the face of increasing sanctions restrictions in 2023.

We are waiting for another blow to the Russian oil industry — the entry into force of the European embargo on the petroleum products export to the European market, which, by and large, we have not had time to replace over the past six or seven months, because there is no alternative market niche, Alexey Gromov says. According to him, this could become a significant problem for Russia, since a forced reduction in exports will also cause a reduction in oil refining. In this situation, the decline in production, according to the expert, may be from 7% to 10% next year, or from 40 million tons to 60 million tons year-on-year.

What will happen to prices

All restrictions on the Russian oil industry have been imposed on the increased fears of a recession in the global economy — due to the coronavirus situation in China, the unfavorable state of industry in Europe and the expected slowdown of the American economy at least in the first half of 2023, Gromov believes. If there were no general concern that led to a slowdown in the growth of global oil demand in the world next year, then oil prices on the world market would remain high. But this did not happen, because the factor of fear of recession outweighed all the factors associated with restrictions, the analyst notes.

What will happen to the export

Immediately after the introduction of the price ceiling, oil exports from Russia collapsed by almost half, Bloomberg wrote. The "landslide" drop in Russian oil exports by sea, which was announced by foreign observers, Gromov notes, does not yet mean a long-term trend.

"We do not observe additional indirect indicators — overstocking of oil depots and port oil storage facilities in Russia," he says. "The assumption requires verification, but perhaps Russia has begun to use its shadow fleet of tankers, which was created during this year according to the Iranian scheme."

Despite this, he expects a decline in Russian oil exports at least in the first half of 2023. Russia has stepped up work on creating its own fleet or chartering a fleet that can work in the interests of Russia and not depend on foreign shipowners, primarily EU countries, the country did not have time to completely replace European carriers by the beginning of the embargo. According to the expert, as of October, more than 50% of Russian oil supplies by sea were carried out by European shipowners from Greece, Malta and Cyprus (although their share decreased from the previous 70%). Solving the problem will take the first three to six months of the coming year, the analyst says.