Oil prices surged to the highest since 2014 this month, partly fuelled by Russia’s invasion of Ukraine. Any scenario in which westbound flows from the world’s second-largest crude exporter slump would have a significant impact on what is an already tight oil market.
The reality, though, is
that Europe and Russia’s mutual oil-market dependence would make any major
disruption in exports surprising and economically destructive for both Moscow
and Europe if tensions were ever to result in a significant reduction in
westbound crude.
About 2.3Mbpd of Russian crude or about US$75bn a year at current
spot prices, heads west each day through a network of pipelines to export
terminals on the Baltic and Black Seas, as well as pouring directly into
refineries in central and eastern Europe. Flows of refined products -- mostly
diesel, fuel oil and naphtha -- supplement that revenue.
Europe's
exposure to Russian oil supply risks in the wake of the attack has pressured
prices for Moscow's key medium sour crude export grade Urals. In January 2022,
the Brent – Urals Siberia price differential was US$3.6/bbl, by February the
price differential had surged to US$15.7/bbl reflecting the commencement of
hostilities between Russia and Ukraine.