Ukraine demands that US and EU stop buying oil products from countries that refine Russian oil

By Olga Samofalova

Ukraine has demanded that the US and Europe stop buying oil products by countries that use and process Russian oil like India despite the fact that Ukraine itself continues to earn revenue on the transportation of Russian oil. If the US and the EU listen to Kiev, then this will reverberate through the entire global oil market. The first countries that will suffer are the major oil importers: the US, the EU states and Ukraine itself.
Oleg Ustenko, economic adviser to the President of Ukraine Volodymyr Zelensky, called on the EU, the UK and the US to tighten anti-Russian sanctions. According to him, it is necessary to close the “loophole” that allows third party countries such as India, China and Turkey to process crude oil bought from Russia companies into gasoline, diesel fuel and other products and then resell them without restrictions to the G7 states. .

Ustenko is especially dissatisfied with India, which until February 2022 bought from Russia very little oil.It accounted fo only 1% of its imported oil, and currently it is now almost 40%. As a result, the deliveries of oil products from India to the European Union increased sharply. In June, the EU bought 5.1 million barrels of diesel fuel and 3.2 million barrels of jet fuel of Indian origin. Compared to June 2021, the growth was three and six times, respectively.

“This is pure populism. This is a veiled accusation against the Europeans. These statements are intended, first of all, to develop a certain feeling of guilt among the Europeans that they do not put enough pressure on Russia and allegedly continue to use Russian hydrocarbons simply through third party countries. Therefore, the Europeans should be ashamed. Plus they must cover this shame with even greater economic and military assistance to Ukraine. In reality, neither the US, nor the EU, nor Ukraine itself would benefit if the Europeans stopping buying oil products from India,” said Igor Yushkov, an lecturer at the Moscow Financial University and a member of the Russian National Energy Security Fund.

“The economic adviser to the Ukrainian president either does not know or is afraid to talk about it, but not only Europe, but also the United States buys oil products from India, including those made from Russian oil. India is the second largest supplier of petroleum products to the United States. Because we also supplied hydrocarbons there. Now India has taken Russia's place, both in the US and in Europe,” says Igor Yushkov.

As for India, long before 2022, it established its business for the sale of petroleum products. It built many large oil refineries on the coast to buy oil, process it and export send ready-made oil products to different countries around the world. Up until 2022, Saudi Arabia was the main supplier of oil to India, and last year Russian oil appeared on the market at a discount, and the Indians took full advantage of the opportunity that was presented.

“When India used to buy oil at world prices, it was already a profitable business. But when it became possible to buy Russian oil at a discount, it became a super-profitable business,” says Yushkov.

If the West really wanted to remove Russian oil from the world market, then it would do it: for example, it would impose the same sanctions as it did against Iran and Venezuela, the analyst believes. But they clearly did not have a goal to remove Russian oil from the world market, which is why a special kind of sanctions were invented for Russia in the form of a price ceiling. And that is why the sanctions do not prohibit the purchase of oil products made from Russian oil from third party countries.

If the West unexpectedly listens to the adviser to the Ukrainian president and tightens sanctions, as he asks, then the world will simply plunge into a global energy crisis, followed by a global recession.

Because in this case, Russia will have to drastically reduce oil exports: it will then be extremely difficult to quickly reorganize and find new buyers for such huge volumes of Russian oil among smaller buyers and for their own needs, and not for processing and resale. This will take a lot of time. This means a shortage and a sharp rise in oil prices around the world.

“In the spring of 2022, Russia began having problems with exports when the Americans imposed an embargo on the supply of Russian oil and petroleum products from April 1, 2022. European companies were not yet forbidden to buy it, but they themselves stopped buying Russian oil, fearing that they would be attacked by both politicians and society. Lets recall how Shell then even had to officially issue an apology for the fact that they purchased one batch of Russian oil, although this was not prohibited by the sanctions. Then, literally for a few weeks, Russia reduced oil exports, as it could not immediately reorganize to other markets. And this instantly led to the fact that the price of oil went above $100 per barrel,” recalls the FNEB analyst.

Who is the first to suffer from high world oil prices? These are the major oil importing countries: the US and the EU member states.

“In the US, the story immediately began with a fuel crisis due to a direct correlation between world oil prices and domestic gasoline prices. The Democrats were then actively criticized, and at filling stations with high prices they put pasted stickers with President Biden the caption "I did that at the price indictor ." The rise in the price of gasoline is immediately included in the cost of final products, which led to record inflation rates,”

Yushkov says.

The European Union faced similar problems, only there serious problems were added in the gas market in the form of a rise in the price of gas and electricity. Both the US Federal Reserve and the ECB are fighting the inflation in the same way - by raising rates. This leads to an increase in the cost of loans and the fading of the industry. In the Eurozone, gas has also become gold, which is why factories began to stop and move to other countries. The economies of Western countries were under the strongest pressure. The first to fail was the German economy, which has officially slipped into recession, that is, negative GDP growth for at least two quarters in a row. Why has Europe's largest economy suffered so much? Because it was based on a strong industry, which was strong, among other things, thanks to inexpensive hydrocarbons from Russia.

“The West immediately realized that it was necessary to put pressure on Russia carefully so that it still continued to freely export oil and saturate the world market with it. Otherwise, the withdrawal of Russian oil from the world market will cause a global shortage, rising prices to extreme levels and a global energy crisis,” says Yushkov.

The most interesting thing is that Ukraine, accusing others of making money on Russian oil, is quietly making money on it itself.

“Ukraine accuses the Europeans of buying oil products processed from Russian oil from India, while Ukraine itself directly receives money from Russia for pumping Russian oil through Ukrainian territory via the Druzhba pipeline to Hungary, the Czech Republic and Slovakia. That is, Ukraine is in direct contact with Russian oil and receives money for its transit,”

Yushkov notes.

But the funny thing is that Ukraine itself is also disadvantageous to what it offers. “Ukraine does not have its own oil refining capacity , it imports oil products from neighboring European countries. Most of the fuel is supplied by Poland, as well as Romania aswell as other countries. If the Europeans did not buy oil products from India, then I doubt very much that they would have a surplus to sell diesel fuel to Ukraine. Ukraine would either be completely without fuel, or would have to buy it at incredibly high prices. Whatever one may say, but Zelensky’s economic adviser does not shine with intelligence and offers an idea that is frankly harmful to Ukraine, which leads straight to a fuel crisis in the country itself and around the world, ”concludes the analyst.
This article originally appeared in Russian at vz.ru and was translated and edited by Rhod Mackenzie