The Dark War Under the Iron Curtain of Energy: The Buying and Selling Game Intensifies the Reconstitution of the Oil Market, Who Profits from It?

On the one hand, a large number of tankers full of "for sale" Russian crude oil are floating at sea with nowhere to go, on the other hand, the European and American countries that are subject to sanctions and have begun to suffer from serious energy shortages and inflation and have to "find oil all over the world".
The smoke of the Russian-Ukrainian conflict has not dissipated for a hundred days, and an energy dark war outside the war zone is in full swing
.

As the world's third largest oil producer, Russia has always been an indispensable energy supplier to European countries
.
However, with the advancement of the Russian military's special military operations in Ukraine, the Western countries are holding the increase in sanctions against Russia as "politically correct"
.
As a result, market concerns about supply have pushed up international oil prices, and global oil supply chains are undergoing disruptions, turmoil and restructuring
.

Understanding the process of restructuring the oil supply chain is simply like the original buyer (referring to the Western countries) canceling the order – looking for a new seller; The original seller (referring to Russia) lost the order – opening up new buyers
.

However, this process did not happen
overnight.
Can inflation-mired U.
S.
and European countries get commitments from other oil-producing countries to increase production? Can sanctioned Russia sell oil? This is both a game between the West and Russia, and a choice
between so-called international morality and real needs of each economy.

European and American buyers cancel orders

On March 6, a tanker carrying 1 million barrels of Russian crude oil departed from the port of Murmansk for its destination, Philadelphia
, in the northeastern United States.
However, 16 days after departure, just as it was heading to the middle of the Atlantic, the tanker suddenly changed course
.

A reasonable guess is that the Panamanian-flagged tanker, dubbed Beijing Spirit, is likely to have lost its original owner
.
According to MarineTraffic, a global maritime data provider, the tanker canceled "Philadelphia" as its original destination and changed the new destination to "for order
.
"

The oil on board had to find another way
out.
On March 22, the tanker made a "U-shaped" turn in the Atlantic Ocean and sailed back to Europe
.
After a few days of wandering the Mediterranean, it seems to have found a more "friendly" new buyer
.

Tracking data shows that in the early morning of April 1, the Beijing Spirit docked
at Santa Panagia, an oil terminal on the east coast of Sicily, Italy.
It is unclear whether the cargo on the tanker was sold or unloaded, but it no longer signals
"for sale".

"Beijing Spirit" Route Map Drafting: Wang Yiyun Image source: MarineTraffic, an online ship tracking service website; The New York Times

The tortuous voyage of the "Beijing Spirit" oil tanker gives us a glimpse of the process of adjusting the oil supply chain in the turmoil after the Russian-Ukrainian conflict
.
As it happens, two days after the Beijing Spirit departed from Russia, in an effort to "strike a powerful blow at Putin's war machine," the United States announced an energy embargo on Russia on March 8, which went into effect
on April 22.
On the same day, the EU also followed the statement that it would significantly reduce oil and gas
imports from Russia.

Western countries joined forces to launch sanctions against Russian energy, catering to the Western people's "moral" support for Ukraine's position, and a kind of "political correctness" has gradually formed within Western society
.

In this environment, fearing the opposition and protests of consumers in the Western market, many European and American companies have to carry out so-called "self-sanctions", and even before the official oil ban takes effect, they voluntarily give up or terminate their business
with Russia.

And it is not only the oil tanker
"Beijing Spirit" that is affected by this.
According to the Guardian, on March 22, a 50,000-tonne-flagged oil tanker carrying Russian petrochemicals, the mineral-flagged Minerva Virgo, docked in New York when it was protested by environmental group Greenpeace, and the bright yellow bold slogan "Oil Fuels War" was particularly prominent
.

Activists protested
near the Minerva Virgin, anchored in Bayon, New Jersey.
Source: Bjoern Kils/Reuters

It is precisely because many Western countries and companies avoid energy trading with Russia, according to the Finnish think tank Energy and Clean Air Research Center (CREA), that the energy imports of other countries to Russia in May this year fell by about
15% compared with the pre-Russian-Ukrainian conflict.
As Russia's biggest buyer of energy, EU imports of crude oil from Russia also fell 18 percent
in May.

It is worth noting that although the original buyers have cancelled the orders one after another, there are still orders from new buyers to fill the place
.
Overall, Russia's crude oil exports in May did not show a downward trend
.

Orders from Asian buyers such as India have surged

If the United States, Europe and other countries "scorn" Russian oil, then Asian buyers such as India can be described as "doing the opposite", and the demand for discounted oil in Russia has surged
.

On May 18, a tanker called Huelva Star, carrying 100,000 tons of Urals crude oil, departed from the Russian port of Ust-Luga, passing through the Baltic Sea, the English Channel, the Strait of Gibraltar, and then crossing the Mediterranean, the Red Sea, and the Arabian Sea, and finally arrived at Vizag on the east coast of India on June 21, a voyage that lasted more than
a month.

In fact, since the outbreak of the Russian-Ukrainian conflict, there have been many oil tankers traveling back and forth between
Russian and Indian ports as frequently as the "Huelva Star".
In May, Russia succeeded in replacing Saudi Arabia as India's second-largest oil supplier
.
In January and February before the conflict, India did not import crude oil
from Russia.

According to Refinitiv Eikon, an international commodity trading information website, Russia supplied India with more than 24 million barrels of oil in May, up from 7.
2 million barrels in April and 3 million barrels
in March.
And that number is equivalent to 25 times
last year's average monthly deliveries.

Turf Huelva Star from Russia to India Route Map Draft:Wang Yiyun Source: Emma Li, market analyst at Vortexa, an energy analysis company

India's indifference to "political correctness" among Western countries and its increased purchase of Russian oil have already caused dissatisfaction among
the United States and Europe.
U.
S.
President Joe Biden and White House officials have repeatedly "pounded" India, demanding that it cooperate with the United States and its Western allies in "blocking" Russia's energy revenues, warning India not to side with "historical mistakes.
"

In response to questions and accusations, India's Ministry of Oil and Gas issued a statement on May 4 refuting that energy purchased from Russia is still insignificant compared to India's own energy consumption
.
"India's legitimate energy deals should not be politicized, and energy trade is not within
sanctions.
"

Unlike the political considerations of countries such as the United States and Europe, India's decision to increase Russian crude oil imports is mainly driven
by real economic interests.
After the Russian-Ukrainian conflict, global energy prices soared
.
Russia sells Ural crude oil at a discount in response to Western sanctions, attracting new buyers at low prices
.
According to the Wall Street Times, the previously popular price of Urals crude oil was $37 lower than the benchmark price of Brent crude oil, the largest
discount in several years.

Crude oil obtained at a discounted price is also more conducive to India's macroeconomic stability
.
Like many countries around the world, India is also working to prevent rising fuel prices from triggering runaway inflation
.
In the past, high oil prices have exacerbated India's current-account deficit (Editor's Note: A country or economy imports more goods and services than exports total, i.
e.
, the state of the trade deficit), resulting in a sharp depreciation of India's
currency.

As the world's third largest oil consumer, India relies on imports for more than 80% of its oil, plus it has deep historical ties and military ties with Russia, so it is naturally difficult to refuse such an opportunity to
"pick up leaks".

"Middlemen" earn the difference?

Another noteworthy trend is that after a large number of purchased discounted Russian oil, India's refined oil exports have also begun to increase
significantly.
The outside world is increasingly suspicious whether India is becoming a "back door" for Russian oil to enter European and American countries.

On May 28, a Singaporean-flagged tanker called Hafnia Shenzhen departed
from the new port of Mangalore on India's west coast carrying 70,000 tons of gasoline.
After a month's journey, he arrived in New York Harbor
, USA, on June 29.

Two days later, another Norwegian-flagged tanker called "Susana S" (SUSANA S), loaded with 20,000 tons of gasoline, departed from Sika Port on India's west coast on May 30 and arrived at the Dutch port
of Amsterdam on June 22.

Trade data also confirms India's recent more frequent interactions
with European and American countries.
The Wall Street Journal reported that since the Russian-Ukrainian conflict, India's average daily refined oil shipments to Europe have increased by one-third, and shipments to the United States have increased by 43%
every quarter.

Roadmap for the recent shipment of refined oil products to Europe and the United States from Indian ports
.
Draft:Wang Yiyun Image source: Emma Li, market analyst at Vortexa, an energy analysis company

In this regard, many analysts believe that India, as a "middleman", bought oil from Russia with its left hand and sold petroleum products to Europe and the United States with its right hand, and enjoyed high profits
in the process of "one in and one out" by covering up the origin of refined oil.

In the wake of the Russian-Ukrainian conflict, the Center for Energy and Clean Air Research (CREA) has been tracking Russia's fossil fuel exports
.
The agency said in a June 3 tweet, "Recently, our tracking shows that EU and US companies are buying petroleum products from an oil refinery in India, which has significantly increased the volume
of crude oil imported from Russia.
" ”

CREA and the Wall Street Journal further explain the "doorway" of this, that is, Indian refineries buy Russian crude oil, refine it into gasoline or diesel, and then work with shippers to export these refined oil products to European and American countries
.
As a result, Russia's oil is hidden in mixed refined petroleum products such as gasoline, diesel and chemicals, which are difficult to identify and trace, and can evade US and European sanctions
.

Despite the plausibility of these inferences, there is no definitive evidence that India's refined oil exports to Europe and the United States are derived from
Russian oil.
Even so, we may be able to glimpse the "wealth code" in the "business experience" of India's large energy companies
.

An anomaly was the decision in early May by India's Reliance Industries, which owns the world's largest refinery, to postpone repairs at the refinery in order to produce more petroleum products such as gasoline and diesel
.
Bloomberg reported that U.
S.
-European energy sanctions against Russia have pushed profit margins on some petroleum products to a three-year high
.
A report by Reliance shows that from January to March this year, diesel margins soared 71% from the previous quarter, while gasoline margins rose by 17%.

Sricante, Reliance's co-chief financial officer, explained the company's path to
profit in early May.
Srikante said that with the strong recovery in demand for fossil fuels, "we have minimized
the cost of raw materials through crude oil arbitrage.
" ”

What is the operation of "crude oil arbitrage"? An employee of an Indian private oil refining company pointed out directly to Reuters that "by processing Russian oil, refining profits exceed $30 per barrel, and then huge profits
can be made by exporting refined fuel.
" ”

The game between "sanctions" and "anti-sanctions" will continue

The Russian-Ukrainian conflict has been more than a hundred days, and the global energy supply chain is undergoing drastic adjustment and restructuring in the process of canceling energy "orders" from the United States, Europe and other Western countries canceling energy "orders" for Russia, and Russia looking for new "buyers"
.

At the same time, this round of "sanctions" and "anti-sanctions" in the energy field is also a profound impact on the next move
between the United States and European countries and Russia.

For Western countries, the effect of the energy embargo on Russia may be much lower than expected
.
The surge in Asian oil imports to Russia, as well as high oil prices on the international market (Editor's Note: Even if Russia sells discounted oil, the current average oil price is still 60% higher than last year) have become Russia's "weapons"
to defuse sanctions.

According to a report released by the CREA, Russia generated a record 93 billion euros in revenues from oil, gas and coal exports during the first 100 days of the Russian-Ukrainian conflict, of which about two-thirds came from oil and most of the rest from natural gas
.
It is worth mentioning that Russia's fossil fuel exports exceed the country's expenditure on the war in Ukraine, which may also support
Russia's continued advancement on the battlefield.

However, in the medium and long term, Russia's road to breaking through sanctions to find a buyer is still tortuous
.
Emma Li, a market analyst at Vortexa, an energy analyst firm, told The Paper (www.
thepaper.
cn) that due to Russia's limited domestic crude oil storage capacity, Russia's total offshore storage of Urals crude oil in early June has reached a record 63 million barrels, and these tankers that have not yet found a buyer can only temporarily float near
the port.
Before the Russian-Ukrainian conflict at the end of February, that number was below 20 million barrels
.

While offering energy "killers" to Russia, the economies of the United States and European countries have also been "repulsed"
.
Domestic gasoline and diesel prices are also setting new records, exacerbating the worst inflation crisis
in four decades.
With the midterm elections approaching, Biden, whose approval ratings are hovering low, is busy "looking for oil all over the world
.
"

Forced by high oil prices, the United States has stepped down to the "moral high ground" and has to bow
to reality.
Recently, Biden has relaxed some sanctions and restrictions on the "hostile countries" Venezuela and Iran, allowing their oil to flow into Europe and global markets
.
In addition, what Biden once called a "pariah state" has also become the focus of the United States
.
Biden will visit Saudi Arabia in July, and increasing oil production is bound to become an unavoidable issue
.

On the other side of the Atlantic, the Eurozone's preliminary consumer price index (CPI) for May surged 8.
1 percent year-on-year to an all-time high
.
Rabobank expects the eurozone economy to enter a recession
by the end of 2022 or early 2023.
To alleviate the energy crisis, European refiners are turning their attention to West African oil
.

The new supply may be difficult to fill the energy shortage in Europe, and some European countries are still difficult to give up their long-standing dependence on
Russian energy.
Recently, Russian oil flows to Europe have quietly climbed
again.
According to tanker tracking data compiled by Bloomberg, refineries on the European continent imported an average of 1.
84 million barrels of crude oil a day from Russia in mid-June, the third consecutive week of increase and the highest level
in nearly two months.

In the shadow of the Russian-Ukrainian conflict and Europe's oil ban on Russia, these oil tankers who bear the high risk of traveling between Russia and Europe are particularly cautious, most of them choose to turn off the GPS tracking transponder, "stealth" stealth, and it is difficult for the outside world to know where
they will eventually go.

The confrontation on the military battlefield may eventually come to an end, but the impact and structural changes of the energy dark war on the world will continue
.