For the first time, the Russian authorities publicly acknowledged that sanctions and price ceilings imposed by a coalition of Western countries have begun to create problems for Russian oil exports. Deputy Prime Minister and former Energy Minister Alexander Novak said in an interview with TASS that Russia had problems with insuring ships that are used to export oil. According to him, these problems are being solved.
In addition to a direct embargo on Russian oil supplies to the European Union and the UK, the sanctions set a cap on Russian oil at $60 per barrel. The sale of Russian oil above this “ceiling” deprives Western companies of the opportunity to provide export-related services, such as ship insurance, financial support for transactions, ship charter, consultations, etc.
According to the Deputy Prime Minister, the problems due to sanctions are related to the inability to fully compensate for the loss of insurance services. Answering a question about the launch of the Russian mechanism for insuring Russian tankers, which was supposed to replace Western insurance, the official admitted that problems in this direction remain.
“We began to prepare these measures on the instructions of the President as a preventive measure. As a result, we managed to capitalize the Russian National Reinsurance Company and worked with friendly countries. In general, there are still problems in this direction, but they are being solved. As you can see from the statistics, exports are on,” Alexander Novak said.
To a clarifying question about the share of Russian companies in the maritime oil export insurance market, Novak avoided a direct answer, stating that "their share is much larger than it was before the strengthening of sanctions." However, before the strengthening of sanctions, the share of Russian insurers in the total share was extremely insignificant – Western insurance companies account for at least 90% of the market, so even a multiple increase in the Russian share in the insurance of ships with export oil can hardly cover the needs of Russian energy companies.
Commenting on the possible restrictions on Russian oil products, which Western countries intend to introduce from February, Alexander Novak noted that in this case Russia could increase oil exports in response.
“We have calculated different scenarios, including with the current ratio of oil exports, production and refining. If there are problems with the sale of petroleum products, oil refining to some extent can be replaced by additional volumes of oil exports,” the Deputy Prime Minister said.
According to Bloomberg, this is a relatively positive signal for the markets, as many politicians and energy market analysts feared that Russian threats to stop oil exports to countries that join the price ceiling could lead to a shortage of oil in world markets. At the same time, certain risks remain for the oil products market, primarily in Europe, which is already experiencing certain problems with certain types of petroleum products, for example, diesel.
Regardless of the pressure, in 2022, according to Novak, Russia will increase oil production by about 2% compared to 2021, and its level will be 535 million tons (about 10.74 million barrels per day). Exports will grow by the end of the year by 7.5% and amount to 242 million tons. At the same time, Novak admits that sanctions will negatively affect oil production in 2023: he admits that total production by the end of the year will fall to 490-500 million tons (9.84-10.04 million barrels per day). The International Energy Agency (IEA) previously predicted that Russian production in the first quarter of 2023 could drop to 9 million barrels per day. The recovery of production will depend on demand and export opportunities, both Novak and the IEA acknowledge.