Oil and embargo effect… The USA announced that it will ban oil, LNG and coal imports from Russia. The UK reiterated that it would do the same, but appropriately ignored restrictions on natural gas imports.
We observe that the prices of oil and other commodities have risen sharply. The risk to global oil supply has increased significantly over the past 10 days. Russia alone accounts for around 10% of global oil production, and price increases in global oil futures have continued steadily since the invasion of Ukraine. This reinforces the growth in oil prices that have risen since spring 2020, when oil demand fell as the pandemic started in the Americas and Europe.
Oil production levels in Russia, Venezuela and Iran… Source: OPEC, Rystad Energy, Bloomberg
The share of Russian oil and its substitution effect… The oil and petroleum products imports of the USA and England from Russia have a share of approximately 3%. When other fuel by-products are included in this, there is a share that reaches 8%. Europe, especially Germany, has not made any progress in this regard, as its nearly half share of imports still causes them to rely on Russian fossil fuel sources for industrial production. Russia supplies a significant amount of fossil fuels to other European countries. It became the largest oil and gas exporter to the European Union in 2021, with 40% of the gas consumed in the EU coming from Russia. The sanction effect is heavily read through Nordstream 2, but the current global flow is provided via Nordstream 1 and Bluestream.
As of 2009, Russian gas was transported to Europe via 12 pipelines, three directly (to Finland, Estonia and Latvia), four to Belarus (to Lithuania and Poland), and five to Ukraine (Slovakia, Romania, Hungary). The largest Russian gas importers in the European Union are Germany and Italy, which account for almost half of the EU's gas imports from Russia. Other major Russian gas importers in the European Union are France, Hungary, the Czech Republic, Poland, Austria and Slovakia. The largest non-EU importers of Russian natural gas are Turkey and Belarus.
If the Russian oil embargo is also implemented by Europe, there is an impact that needs to be overcome when looking at the Iranian and Venezuelan oil, which were put forward to reduce this dependence: The obstacles created by the sanctions on these countries should be removed (nuclear agreement with Iran, political normalization with Venezuela) and countries’ capacity should be increased to be spared to replace Russian energy.. While Iran's current monthly production is 2.6 million barrels, Venezuela produces 620,000 barrels and Russia's current monthly production is at the level of 10.2 million barrels. Iran has a reserve capacity of 1.3 million barrels, Venezuela has a reserve capacity of 50,000 barrels, which if these two countries are to pump global supply by returning to the oil market, there must be a capacity increase that will produce a total of 5.7 million barrels to replace Russian oil. .
Major existing and planned natural gas pipelines supplying Russian gas to Europe…
Renewable energy… Dependence on Russian fossil fuels poses energy security risks for Europe. In geopolitical issues, Russia's use of pipeline closures, which motivates the European Union to diversify its energy sources, can pose problems from time to time in terms of fossil fuel flow. The energy transition from fossil fuels to renewable energy sources could accelerate as the US and Europe aim to reduce their dependence on Russian oil and gas. The rapid expansion of renewable energy sources in the European energy market will allow less imports. In response to the Russian occupation of Ukraine, the European Commission presented its plan to reduce gas imports from Russia by two-thirds within a year and completely by 2030.
Reserve capacity levels of Iran, Venezuela and other OPEC producers… Source: OPEC, Bloomberg
Conclusion? Even without targeted sanctions on Russia's oil and gas exports, the Russia-Ukraine military conflict has forced many countries to reassess their energy security. As geopolitical overhaul escalates against the backdrop of Russia's invasion of Ukraine, the impact of widespread global disruption may keep energy security on a slippery foot. In addition, it seems that the ESG transformation due to climate change will turn renewable energy investments from traditional methods in order to reduce dependency on Russian energy resources. In the short term, the way of dependence on Russian gas will pass through other transit pipelines (the Southern Gas Corridor, which connects the huge Shah Deniz gas field in Azerbaijan with Europe, aims to reduce Europe's dependence on Russian gas) or other oil and gas providers; In the long run, ESG transformation will be at the center.
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