“When the Middle East crisis is resolved, difficult times will come for Russian oil”

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to the "Chemical Aggregates" magazine on the possible prospects for Russian oil exports after the end of the Middle East crisis.

— The law passed by Congress allows for the introduction, but also gives President Trump the opportunity to handle new instruments at his discretion. Will he use it as he sees fit?

I doubt that the United States, represented by the current administration and the president, will decide to immediately impose such sanctions on buyers of Russian oil. That’s the first point. Second, even if a decision is made, it’s obvious that the main buyers of Russian oil — India and China — will clearly resist complying with US demands, given that these countries won’t be able to secure alternative supplies in the coming months. And this could directly threaten their economic interests and energy security. Therefore, I believe that at this point, these sanctions do not pose a threat to Russia’s oil exports, although, of course, this is an extremely unpleasant signal, since the adoption of this law gives the US president a very powerful sanction weapon against Russia, which can be used at any convenient time to put pressure on Russia and its buyers of hydrocarbons.

— If the crisis in the Middle East is resolved, and there is a sufficient supply of oil on the market, the US president will impose sanctions on buyers of Russian oil. What are the consequences of this, given that the president imposes the sanctions, while only Congress can lift them?

— In this situation, this law is undoubtedly a serious tool for exerting pressure on buyers of Russian oil. The main risk area for us remains India. China has been quite regularly demonstrating its almost complete disregard for US sanctions, since, despite the fact that the US has announced a campaign to economically and financially isolate Iran, China has not curtailed its cooperation with that country. I think that, by analogy with Iran, China will act similarly with regard to Russia, despite this bill.

— Will Indian buyers remain loyal to Russian suppliers?

— The situation with India is more complicated. If the Middle Eastern issue is resolved on the market, there will be an opportunity to choose suppliers; Indian companies, primarily state‑owned ones, which are usually law‑abiding and monitor their international standing, I think, will look for sources of oil supplies. In the long term, the number of those willing to buy Russian oil in large volumes — so that these volumes become significant in the consumption volumes of these countries within the framework of the enforcement of the new sanctions — may decrease.

— How will this affect the budget? Currently, the price of Russian oil has risen sharply due to a reduction in supply.

— Of course, this will have a negative impact. But the most important factor will not be the new sanctions regime being developed in the US against buyers of Russian oil, but, first and foremost, the expected decline in global oil prices if the Middle East crisis is resolved in one way or another. In this situation, we must understand that the artificial rise in prices above $100 per barrel will, of course, come to an end. When addressing the Middle East issue, we will probably see a situation similar to the one in July of this year, when, within just a few weeks, after the temporary truce between the US and Iran was established and the Islamabad Memorandum was signed, the Strait of Hormuz was fully opened for a month, which immediately led to a drop in oil prices from $100 to $70 per barrel. I think the markets will have a roughly similar reaction after the Middle East crisis is resolved, which will immediately affect the prices of Russian oil. Of course, under these conditions, the decline in global prices, the emergence of an oil surplus on the market, and the ability to choose oil suppliers will lead to current buyers of Russian oil shifting their focus to other suppliers.