Russian Oil for US Shores, Energy News, ET EnergyWorld

A recent report by the Wall Street Journal (WSJ) published on June 1, indicates that some oil companies have supplied Russian oil at a discount to the United States and, in this regard, it specifically mentions Indian companies.

Citing data from Kpler, a commodity data analytics website, the WSJ says a refinery owned by Indian conglomerate Reliance Industries bought seven times as much Russian crude in May compared to before the war, i.e. about 20% of its total intake.

Lauri Myllyvirta, an energy analyst at the Center for Energy and Clean Air Research, told the WSJ that what likely happened was that Reliance took a discounted shipment of Russian crude, the refined and then sold the product in the short-term market where it found a US buyer, and there appears to be a trade where Russian crude is refined in India and then some is sold in the US. In addition, the report also mentions ship-to-ship transfers on the high seas.

The WSJ also named another Indian company Nayara Energy (in which Russian oil giant Rosneft has a large stake) engaging in this trade. The newspaper also says Reliance and Nayara did not respond to its request for comment.

However, commenting on ship-to-ship transfers, oil industry analysts say that the whole trade is driven by arbitrage and that it is a common practice where cargoes are diverted for the benefit of traders. Since saving pennies per barrel translates to huge savings, considering the volumes. RIL has been importing Russian oil for three or four years, as has Nayara, India’s second private sector refinery.

Oil Trade Tricks

International traders have continued to keep Russian crude trading, even after the announcement of US economic sanctions against Russia, by blending it with other fuels which are then refined.

Meanwhile, India maintained wartime trade ties with Russia and scooped up cut-price crude that others shunned. Indian imports have jumped to 800,000 bpd since the start of the conflict from 30,000 bpd previously.

What is puzzling is why the WSJ only mentioned Indian companies in its report, as it was reported earlier that many Western countries, including Germany, have been buying oil and Russian gas even after the Russian invasion, in the absence of any EU sanctions. So why does the WSJ report single out India for this practice? Is there an ulterior motive to slander the Indian government on this point, so that they start supporting US-led sanctions against Russia?

US oil imports

The surge in global oil prices, which stood at $110 on June 1, is of particular concern to the United States, the world’s biggest consumer of oil, where inflation is already at its highest level in four decades.

The United States imports Russian oil, but it is not very dependent on the country for its supplies. In 2021, the United States imported an average of 209,000 bpd of crude oil and 500,000 bpd of other petroleum products from Russia, according to the American Fuel and Petrochemical Manufacturers (AFPM) association, which further states that these imports have increased since 2019, after the United States banned Venezuelan oil and after Hurricane Ida disrupted oil production in the Gulf of Mexico.

This whole process also has a wider economic side effect. If the United States stopped importing Russian oil, many other countries could follow, leading to a tightening of the already very tight oil market, which would drive up the price of oil, in turn driving inflation, affecting the US economy seriously.

The political fallout from rising oil prices for the Biden administration could be disastrous. Inflation in the United States increased at an annual rate of 7.5% in January 2022, according to the Bureau of Labor Statistics; the fastest pace since July 1982. That means a $276 increase in average monthly spending for every US household, according to a recent Moody’s Analytics study.

Rising prices and other issues have already dealt a blow to President Joe Biden’s approval ratings, which are in the doldrums after plummeting to a record low of 33% in January 2022. Further increases in inflation could affect his ratings ahead of the crucial mid-term elections in November and also his bid for re-election in 2024.

Potential scenario

In this scenario, what remains a viable and image-building exercise for the United States is to help rebuild the oil industry and basic infrastructure in Iraq, a country destroyed in its pursuit of elements of the ISIS and al-Qaeda there over the past two decades and turning its political and economic structure into shambles. Iraq, even today, remains one of the least developed oil producers in the Middle East.

Iraqi Oil Minister Ihsan Abdul-Jabbar recently said the country aims to increase its crude oil production to 6 million bpd by the end of 2027.

Simon Watkins, a leading oil industry expert, in his latest book The Complete Guide To Global Oil Market Trading, estimates that Iraq currently produces around 4.1 to 4.2 million bpd, compared to its April OPEC quota of 4.414 million bpd, and its quota is expected to increase to 4.5 million bpd in June, and it has the potential to significantly increase oil production.

Additionally, the United States could help Iraq rebuild or expand its oil extraction in the Zubair, Mishrif, Qarmat, ThiQar, Gharraf, and Nasiriya oilfields. The revenues from these oil fields will help rebuild Iraq. A promise that the United States has made many times, but has not kept.

If the Biden administration is genuinely interested in controlling inflation in the United States and also takes credit for delivering on its promises to rebuild Iraq, while effectively banning Russian oil from reaching Western countries, it could effectively achieve these objectives by pursuing a strategy whose cornerstone should be the reconstruction of Iraq.

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