The Houthis are to blame: Russian exports have grown due to oil prices at $100

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to Forbes regarding the export of Russian oil amid the escalation of the situation in the Middle East and the US adoption of a new law imposing “hellish” sanctions against Russia.

In addition to the damage to the East–West oil pipeline, the rise in prices was also affected by Iran’s announcement on September 9 of a ban on shipping in part of the water area outside the Strait of Hormuz — in the Gulf of Oman and the Arabian Sea, Alexey Gromov says. These actions complicate the operations of ships that, with their transponders disabled and under the cover of the US Navy, were able to transport oil through the Strait of Hormuz and transfer it to larger tankers in the Gulf of Oman, from where they delivered it to consumers in Asia, the expert explains.

Even if the operation of the Saudi oil pipeline is restored, there is no guarantee that there will be no new attacks, Gromov says. The Houthis now control the entire western part of Yemen and could block transit through the Bab‑el‑Mandeb Strait at any moment, he notes. 

“If the situation in the Middle East does not settle down, oil prices will not fall below $100 per barrel, and in the event of further escalation, they could reach $110, or even $120 per barrel,” the analyst notes.

Another key factor contributing to the maintenance of high prices is China’s position: after the start of the US war against Iran, it reduced imports, using its accumulated reserves, and prevented oil prices from exceeding $100 per barrel, Gromov says. But it needs to replenish its reserves and meet the needs of its own oil refining, so the country will likely abandon its policy of restricting the import of raw materials.

The decline in strategic oil reserves is not conducive to lower prices — not only in China, where the exact volume is unknown, but also in other countries, primarily the United States. At the beginning of the crisis in the Strait of Hormuz, 32 countries of the International Energy Agency (IEA) agreed to release 400 million barrels of oil from their reserves and put it on the market — the largest volume in the organization’s entire history. Now, according to the expert, countries’ ability to use their reserves is much lower than it was in March–April.

Prices for Russian oil have risen due to problems with exports via the Black Sea, Gromov says. On September 1, Russian President Vladimir Putin stated that Ukraine had damaged about 100 civilian ships in the Black Sea and estimated the damage caused by these actions at 1% of the country’s GDP. Under these conditions, only a few exporters are willing to take the risk and contract ships for large sums of money to cross the Black Sea and deliver oil shipments to Asia. 

“Against this backdrop, Russian oil, of course, is more expensive than any other oil available in Asia,” the expert explains.

Asian buyers are purchasing Russian oil at a higher price due to a sharp reduction in supplies from the Middle East, escalation in the Strait of Hormuz region, the prospect of the Houthis blocking the Bab‑el‑Mandeb Strait, and the shutdown of the Saudi East‑West oil pipeline, he adds.

“Hellish sanctions”

India has limited room for maneuver. On the one hand, he notes, if the prices for Russian oil remain at the same high level as they are now, the country will adjust its purchase volumes in the near future. On the other hand, the shortage of Middle Eastern oil supplies leaves India with few alternatives: it buys oil from West Africa, Brazil, and Venezuela, but these volumes are insufficient for India’s oil refining needs.

Supplies to China also remain at a high level. Beijing is now buying up all the ESPO (ESPO) oil, part of which India used to take, and New Delhi is forced to rely on Urals, Gromov adds.