The Stability of the Oil Market Needs Russia and China

Asharq Al-Awsat, London, February 15

We cannot comprehend what is occurring in the oil market this year without discussing China and Russia, as they will largely influence the trajectory of oil prices in the coming months. Russia is one of the three most significant oil-producing countries in the world, while China is the most significant oil importer. These two countries face distinct difficulties, yet at the same time they are mutually dependent on and are mutually beneficial to each other in these extraordinary circumstances. On one hand, China imports more Russian oil, taking advantage of the discounts offered by Moscow to new buyers in order to compensate for the embargo on its oil from European Union countries. On the other hand, China likely is importing more Russian oil to benefit from it –whether through storage or refining, and to increase its diesel exports to global markets that have been experiencing a shortage in stocks and supplies recently. The role that China plays with Russia is very important for the stability of global markets and should not be seen as merely circumventing Western sanctions. The world needs to maintain a steady supply of oil, diesel and fuel, whether from Russia or other countries. Simultaneously, the West wishes to diminish Moscow’s financial strength in order to counter the Russian war machine. If we look at the International Energy Agency’s report released last week, the data suggests that Russia oil exports in January reached a record high of 8.2 million barrels per day, surpassing their already high levels from December. At the same time, the agency revised its estimates of the expected reduction in Russian oil this year to 1 million barrels per day, instead of the previous expectation of 1.6 million barrels. This decrease in Russian oil production did not have a strong impact on treasury revenues, as January oil revenues dropped by approximately one-third to reach $13 billion. Moreover, Russia is likely to experience further financial losses due to the price ceiling and embargo, as well as having to sell oil at discounted prices. So, has the West been successful? According to the data, the answer is yes; however, the stability of the market is still uncertain and will not be clear until the second half of this year. – Wael Mahdi (translated by Asaf Zilberfarb)