Analysis: Russia sanctions shift oil price-making power from Europe to Asia
Western sanctions on Russian and Iranian oil have channelled cheap fuel to Asia and in the process eroded a decades-long trend whereby the continent has paid more for energy than Europe, according to traders, analysts and Refinitiv Eikon data.
For Asia, a weakened premium amounts to an economic stimulus, highlighting another unintended consequence of the Western sanctions on oil and gas exporter Moscow, which also led to a surge in the amount Europeans have paid for natural gas.
Western Sanctions have led Russia to sell more than twice as much crude to Asia in the year to January, according to Kpler data. Iran, under US sanctions, has boosted exports to the highest in three years on some estimates, with China the biggest buyer.
Volume to Asia more than doubles in 2022
Russia’s flagship export blend Urals, which before the Ukraine invasion was sold in Europe at a few dollars a barrel below the value of benchmark dated Brent, is being sold in Asia at a discount of minus $24, according to Refinitiv Eikon data. Some industry sources, asking not to be named, say the discount is narrower at $10-$15 per barrel.
Even at a discount of around $15 per barrel, a refinery in India processing 200,000 barrels per day would save $3 million a day on its crude purchases compared to a European rival. On an annual basis the saving would exceed $1 billion.
Price-takers and price-makers
The Asian premium dates back to when producer countries began issuing marker prices for their crude in the 1980s, and they could be higher for buyers in Asia, who were more dependent on imports, making them price-takers.
Europe loses supply source
India was among those to have complained about the Asian premium they paid to the big exporters.
‘No free market’
Neil Atkinson, an independent analyst and former senior International Energy Agency official, said the drop in Russia’s Western shipments and its discounted Indian sales were making the Asian premium redundant.