Russian oil trade in the face of economic sanctions

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Introduction According to the Statistical Review of World Energy from British Petroleum[23], Asia has become one of the world’s largest oil- consuming regions. International Energy Agency (IEA, 2021) appointed that during 2022, only China consumed near 14 million barrels of oil per day, India 5 million, and Japan burned more than 3 million barrels only in one day. Using an integrated quantitative assessment framework, Yuan et all stated that inevitable disruptions in the international oil supply can create heavy pressures on downstream oil market for oil- importing countries, particularly China, whose high dependency on imported oil makes its downstream oil supply security an urgent issue. The case of third one provincial- level administrative regions in China in 2017 and 2020 was analyzed to demonstrate the framework. However little attention has been paid to the downstream supply security of the oil industry regarding sudden disruptions (Yuan, et al., 2019). Despite of the economic sanctions imposed on Russia, due to the special military operation, experts on The Economist[24] show that India has an important contribution on the acquisition of Russian oil. News Agency Reuters[25][26] in 2022 confirmed that China is increasing its importation of Russian oil. Based on data, Zheng with colleagues studied the impact of the sanction on national and global fossil energy trading standards using complex network theory. One aspect highlighted to mitigate the impact of sanctions was that Russia must go its currently fossil energy export portfolio to China and other Asian countries. In addition, the study found that sanctions had reshaped the pattern of global fossil energy trade and transferred energy control capacity from European countries to Asia (Zheng et al., 2022). More than two years after the beginning of special military operation, the European Union (EU) has managed to greatly reduce the amount of Russian gas it imports, but the hydrocarbon still supplies some European homes and businesses. According to EU data[27], the share of gas imported by member states through the Russian pipeline decreased from 40% of the total in 2021, to around 8% in 2023. However, when liquefied natural gas (LNG) is included - natural gas cooled to liquid form so that it can be transported by ship - the total share of Russian gas in the EU last year dropped from 18,2% in the second quarter of 2022 to 15,5% in 2023. Despite the economic sanctions imposed to Russia, the Centre for Research on Energy and Clean Air (CREA) showed that, in 2023, 65% of the Russian crude oil was freely traded, while only the rest was under the ceiling price cap policy[28]. Nguyena and Khominich investigated the disparities in financial performance between fossil fuel companies operating in the EU-27 bloc, Russia and countries such as the United States, the United Kingdom, Qatar, Norway, India, China, the United Arab Emirates and Saudi Arabia, which benefited from the export of fossil energy, as an alternative to Russia in the period between 2016 and 2023. The results indicate that countries reliant on imported fossil energy, affiliated to EU-27, must immediately diversify their energy supply sources and focus on developing renewable energy. The authors state that this strategy would be crucial to avoid unexpected shocks in the energy market in the era of geopolitical conflicts and remarkable uncertainty. The report also showed that, despite the economic sanctions throughout the special military operation, Urals and Brent oils returned to prices close to the previous levels, despite of the fact that on the initial moment of the conflict economic sanctions seemed more effective. This indicates that sanctions exhausted their effectiveness over time (Nguyen, Khominich, 2024). Mankiw and Ball addresses the topic Price Control, and repeats that the ideal free market will drive the expected adjustment of prices through free competition. Without any doubt, the equilibrium price will be achieved by the quantity demanded of good and its equilibrium with the supply. Artificial price control, by establishing a maximum price, for example, will result in a shortage, generating undesirable queues and an inadequate control policy. Consequently, the establishment of a maximum sale value of a global dependence product such as oil, will possibly result in favor of the sale of the product to selected markets. Thus, it is possible for the producer to reach a new equilibrium point, considering the shift of his supply curve to the right, given that, if a new price is established, a larger quantity can be produced, which will determine a new equilibrium point for this market (Ball, Mankiw, 2023). Given the hypothesis of escalation the Iran- Israel conflict and considering the recent fluctuations of Russian oil barrel price, it is possible to envisage that similar economic sanctions can be imposed on Iran, resulting on comparable variation of barrel of oil prices over time. Figure 1 shows the variation of the price barrel of oil of commercial oils over time. In 2022, the market prices of traded oils were equivalent. The beginning of the special military operation drove up the value of brent in the market. However, after two years the values reached close values. Russia spends big money on the special military operation, in which it is disbursing more than 10% of its GDP, according to the U.S. Department of Defense. However, Russian government plans to invest heavily in infrastructure, that will allow the country’s economy to flourish even in isolation from the West. Over the next decade, the Russian state expects to channel $70 billion into building transport routes to connect the country to trading partners in Asia and the Middle East. There is an enormous effort to build the International North- South Transport Corridor designed to link Russia and the Indian Ocean through Iran. Authorities promise growth in traffic along all non- Western trade routes. Although oil export revenues have fallen by about 7%, this trade continues to play an important role as an economic source. China currently consumes near 45% of Russian crude oil, followed by India, which buys about 35%. However, the package of economic sanctions until mid-2024 seems have not affected the gas from Russian origin, due to it s importance as a source of energy for the European Community. Figure 1. Variation in the price of a barrel of oil 2022-2024 Source: Oilprice, Trading Economics. According to CREA[29] Russia has been exporting its oil on a large scale to India, China and lately to refineries in Turkey, which has become the third largest importer of Russian oil. It is critical to note that products refined by Turkey have been responsible for imports from G7+ countries - Australia, Norway and Switzerland - near to €$2 billion in the first half of 2024. Turkey has not been subject to economic sanctions, which allows it to export refined oil. USA oil import via Turkish refineries increased by about 300% in the first half of 2024. A report published by BBC[30] shows China’s interest in seeking diversification in the supply of consumed oil, while Russia has sought in China an important consumer, as a way to replace the supply to Europe, in addition to exporting to China the surplus of unsold gas to the European Community. Another article published by BBC[31] addresses both the geographical issue of Mongolia as well as its immense dependence on energy supplies from Russia. The construction of a gas pipeline which carry natural gas to China via Mongolia has a strategic aspect in the diplomatic and economic relationship between these three nations, involving volumes that will exceed 50 billion cubic meters. According to Reuters[32], India surpassed China in volume of Russian oil importation. The available data show that Russian oil accounted for about 44% of India’s total oil imports, reaching a volume of 2.07 million barrels of oil per day, which corresponds to an increase of about 4%. Indian refineries show a strong growing trend, if no further sanctions. Much of the Russian oil is destined for the Essar refinery, located in Gujarat, which imports Russian ESPO blend oil, using large Suezmax ships, with capacity of 180,000 barrels of oil. Figure 2 shows the flow between exporters and importers in the oil world trade in 2023. Clearly, Russian oil has been directed to China and India, which has taken advantage of the price differences practiced in the market, between 3-10%, for the year 2024, depending on the type of oil. Figures 3 and 4 show the difference of current price between WTI, Sokol and ESPO which has been around 5% along the last years. Although, Sokol and ESPO oils are commonly traded, Urals is the main Russian oil under economic sanctions, and Russia continues to produce it in large scale. Some observations should be highlighted regarding to this point: 1) Russia has used suitable ways to transport oil to India, China, Hungary and other countries; 2) countries which buy Russian Urals use their refineries, adjusted to Russian transported to Europe; 3) European countries keep importing these oil products refined in India and China at reasonable prices. Therefore, the free market in Europe is going through troubles, which can turn into a lack of competitiveness. Figure 2. Global crude oil export movements in 2023 Source: International Energy Agency, October 2024. Nowinska and Roslyng Olesen addresses the topic of how military conflicts can affect foreign investments in the involved nations. The study shows that large companies can even increase their investments. The reasons that lead large international corporations to continue investing are not only profit, but also the international pressures and a certain “altruism”. In times of crisis, optimism and adaptability are vital traits of leadership. Leaving aside the economic importance that the European Community and the West have to the world stability, and focusing only on Asia, countries like India and China are among the largest consumers of oil in the world (Nowinska, Roslyng Olesen, 2025). Figure 3. Three- month oil price change SOKOL and WTI Source: Oilprice.com, October 2024. Figure 4. Three-m onth oil price change ESPO and WTI Source: Oilprice.com, October 2024. Yobe and Muchara discussed how the level of carbon emission is capable of affecting economies of countries which seek a more sustainable investments with less environmental impact, using non- renewable sources. In this sense, the authors address the issue of the use of technological and economic innovations to ensure greater integration on the energy transition process. The development cooperation as well as the incentive for investments which seek the reduction of CO2 emissions can serve as a model for other neighboring nations to also develop an ecological and sustainable awareness (Yobe, Muchara, 2024). Ma and Nezhnikova discussed how China will enable an energy transition, given the new global restriction in CO2 emissions. The levels of energy consumption in the 2000s were about 1.5 million tons of energy equivalence via coal consumption, jumping to about 4.3 million tons of energy equivalence for 2014, and China must structure its industries for a more sustainable way as well as low- carbon consumption (Ma, Nezhnikova, 2024). Andrade et all showed that the fragmentation of producers play an important role on Chinese as well as on Indian oil consumption (Andrade, et al., 2024). Considering that India has overtaken China as the largest importer of oil, can be stated that the West World should pay more attention to buyer accountability and to the economic reality of the oil market. The World Petroleum Report[33] projects for 2050 a demand of 120 million barrels of oil per day, following a peak of production. The world will continue to consume oil, but with a more realistic view of environmental impacts, which will necessarily lead to new and appropriate investments, combining fossil and renewable sources. Methodology Cosenza et all used structured matrices to help decision- makers choose the best location for an industrial project. The algorithm was applied to install biodiesel plants and help government decision- makers to define investment priorities in the sector (Cosenza, Doria, Pessoa, 2015). Another work by Cosenza, Neves and Lima established a hierarchical model for the location of biodiesel, industrial centers, considering the geographic locations for construction, as well as the economic effects that would result from this regional scenario The work pointed out a series of location for biodiesel production, showing the effects and impacts in the economic and social areas (Cosenza, Neves, Lima, 2017). The COPPE-CosenzaR model ranked a set of industrial facility locations, based on the inputs to operate each industrial facility and the resources available at each location. The model enables decision- makers to include veto power and to assess several industrial facility projects against existing options. Using simple linguistic variables, it provides decision- makers with an intuitive framework that facilitates the elicitation of their subjective preferences (Taranti, Cosenza, Pessôa, Collazo, 2021). Seeking the application of a model that makes it possible to provide the best energy sources under the best conditions, Andrade et all. (Andrade, et al., 2023) applied a decision- making model for the supply of physical commodities using fuzzy tools. To achieved the best decision in the supply for the refinery of Mizushima, Japan, Andrade et all, cited above, considered three steps for the application of the hierarchical fuzzy method, namely: 1) refining margin screening; 2) the fuzzy matrices of technical selection; 3) use of COPPE-Cosenza fuzzy method (Andrade, et al., 2024). A suitable refinement on the methodology can lead to the systematization or semi- automation of an activity, that encompasses more than US$ 10 billion per day, in a complex decision- making process that depends largely on experience and feeling of the decision- maker. For practical implementation of the methodology, the final ranking can be reached by mixing fuzzy and non- fuzzy logic. Analysis of the results The work initially assigned the filters for 70 different crude oil options, reaching 19 purchase options, at a final technical selection, as shown on Figure 5. Among initially 70 options analyzed in the model mentioned above, Russian Urals oil was recognized as a competitive option, since it presented high viability and good refining margin for the chosen demand. Figure 5. Technical selection matrix for Lavera, considering the refining margin and technical feasibility Source: completed by G.B. Andrade, F. Krykhtine, C.A.N. Cosenza, V.C. Silva. An important aspect evaluated in the application of this methodology is the logistical issue, which will result in diverse options to be considered in the decision for choosing supplier. The methodology has already been applied on supplier options in Europe and Asia. The final decision strongly considered the type of logistics supply as an important element for the result, although other oils showed favorable requirements. Table 1, 2 and 3 show some of the results of the method path, obtained using the hierarchical fuzzy model applied to oil trading. Table 1 Delta Locational Index Matrix for Lavera - France Delta Matrix of Locational Indices 3 ships FOB 3 ships DAT 1 ship FOB At the tank Saudi Aramco - Saudi Arabia 1,03 0,87 0,89 - Petrobras - Campos Basin 0,55 - 0,45 - Gasprom - Russia 0,69 - 0,61 - Esso - Iraq 0,62 0,45 0,53 - BP - Gulf of Mexico 0,99 1,06 0,85 - Shell - North Sea 1,01 1,00 0,86 - Vitol - 0,97 - - Glencore - 0,84 - - Total - Lavera - - - 0,77 Source: completed by G.B. Andrade, F. Krykhtine, C.A.N. Cosenza, V.C. Silva. Table 2 Fuzzy Evaluation of the Delta Matrix of Locational Indices for Lavera - France Delta Matrix of Locational Indices 3 ships FOB 3 ships DAT 1 ship FOB At the tank Saudi Aramco - Saudi Arabia Very competitive Competitive Competitive - Petrobras - Campos Basin Uncompetitive - Uncompetitive - Gasprom - Russia Uncompetitive - Uncompetitive - Esso - Iraq Uncompetitive Uncompetitive Uncompetitive - BP - Gulf of Mexico Competitive Very competitive Competitive - Shell - North Sea Very competitive Competitive Competitive - Vitol - Competitive - - Glencore - Competitive - - Total - Lavera - - - Uncompetitive Source: completed by G.B. Andrade, F. Krykhtine, C.A.N. Cosenza, V.C. Silva. Table 3 Delta Locational Index Matrix for Mizushima - Japan Delta Matrix of Locational Indices 3 ships FOB 3 ships DAT 1 ship FOB At the tank NNPC - Nigeria 0,5 0,49 0,46 Ж Petrobras - Campos Basin 0,5 Ж 0,80 Ж Gasprom - Russia 0,86 0,58 0,55 Ж Esso - Mizushima Ж Ж Ж 1,02 BP - Gulf of Mexico 0,88 0,97 Ж Ж Shell - North Sea 0,99 1,22 1,16 Ж Vitol Ж 1,04 Ж Ж Glencore Ж 1,06 Ж Ж Total - North Sea 1,07 1,09 1,03 Ж Source: completed by G.B. Andrade, F. Krykhtine, C.A.N. Cosenza, V.C. Silva. Table 6 Fuzzy Evaluation of the Delta Matrix of Locational Indices for Mizushima - Japan Delta Matrix of Locational Indices 3 ships FOB 3 ships DAT 1 ship FOB At the tank NNPC - Nigeria Uncompetitive Uncompetitive Uncompetitive Ж Petrobras - Campos Basin Uncompetitive Ж Uncompetitive Ж Gasprom - Russia Competitive Uncompetitive Uncompetitive Ж Esso - Mizushima Ж Ж Ж Very competitive BP - Gulf of Mexico Competitive Very competitive Ж Ж Shell - North Sea Competitive Very competitive Very competitive Ж Vitol Ж Very competitive Ж Glencore Ж Very competitive Ж Ж Total - North Sea Very competitive Very competitive Very competitive Ж Source: completed by G.B. Andrade, F. Krykhtine, C.A.N. Cosenza, V.C. Silva. The gas market indicate that the economic sanctions imposed on Russia, which seek to impact Russian gas exports, effectively generate little impact, as the use of gas in European ports represents only 10% of Russian exports and data show that the European Union continues to be the major buyer of Russian gas via pipeline, importing about 33% of Russian gas, followed by China, importing 30%. Although there is currently much debate among large companies on energy transition seeking greater integration for the use of renewable energy sources, it is worth noting that oil is still the world’s main energy source. In the year 2050, investments in the petroleum industry are expected to be in the order of US$ 17.4 trillion, 14.2 trillion headed for upstream operations, and only 1.9 trillion for downstream operations and 1.3 trillion for midstream. Russia is the larger economy in Eurasian region and, so far, has been able to overcome external adversities beyond expectation. This suggests that, in the long- term, Russia can experience a vigorous economic growth, considering oil as its driving force. Oil and gas are still the main energy resources, despite the increase in research and production of more clean fonts. The total amount of renewable energy consumed is still small compared to oil, coal and natural gas, which are still abundant and relatively cheap. For gasoline the consume growth is expected to reverse after 2023 and for transportation fuels in general, after 2026. These trends are the result of the shift towards lower CO2 emissions sources triggered by the global energy crisis, as well as the political emphasis on energy optimization. Some evidence demonstrates that the differences between the pledge scenario of net-z ero emission by 2050 and the real situation are stark, while global commitments are needed if the world really wants to reach that goal by mid- century. Security of energy supply is fundamental to the functioning of modern society. In a highly globalized world, energy is the foundation that underpins communication, trade, the financial system, and health services. The absence of energy would paralyze essential activities and compromises the basic infrastructure of any nation. For society to continue to evolve and function properly, it is essential to ensure an uninterrupted energy supply that meets the needs of all sectors at any time of the day. Conclusion Continuity in the power supply is crucial to avoid catastrophic situations, such as cars stopped on the streets, ships adrift at sea, and planes unable to take off or maintain flight. In addition, the unavailability of energy can lead to the collapse of hospitals, interrupting vital treatments, and stopping industries, negatively impacting the economy. The energy power needs to always be available to ensure that all of society’s essential operations run smoothly. Thus, investing in the security of energy supply is investing in the stability and continuous progress of humanity. Economic worldwide developments are still needed concurrent with more social justice. Nearby 700 million people still do not have access to any source of electricity. The search for a fair energy transition, based solely on universal access to electricity is indeed a great accomplishment for the population hitherto underserved. In this sense, the issue of the energy trilemma must be addressed, security, affordability, and sustainability, which concerns not only the security of energy supply, but also a just accessible as well as sustainable production, which can support investments on new processes that further will increase flexibility in the selection of raw materials. The management of the energy trilemma is one of the greatest challenges of our time and requires radical changes in numerous fields of study, including the optimization of the energy matrix and existing raw materials. In current refinery planning and trading practices, oils are typically classified purely according to refining viability and profit margin. The herein developed method is a contribution to the improvement of the ranking and selection process of crude oils, by systematizing the usual combination of the profit margin and the technical viability, with a proposed additional linguistic and subjective analysis. The success of a profitable refinery depends on several factors, but the to purchase decision of crude oil still is crucial in the establishment of the profit margin. The optimized operation of a refinery depends as well on the ability to adapt to changes because it has been common for uncompetitive refineries to decommission. The application of a subjective analysis in an objective and intelligent process was achieved by applying fuzzy logic on crude oil trade. When applied to real- life situations, the model proved to be a valuable tool. The simple transparency of the results of the attribution and classification of factors can lead to excellent discussions and can promote team growth and better business management. This technique has the potential to improve purchase selection of crude oils, with the engagement of artificial intelligence experts, working together with traders and planning assistants.

About the authors

Gustavo B. Andrade

Federal University of Rio De Janeiro

Email: gustavo106@hotmail.com
ORCID iD: 0000-0001-9678-8581

Ph.D., researcher, Fuzzy Logic Laboratory, Industrial Engineering Institute

119 R. Antônio Barros de Castro, Rio de Janeiro, 21941-853, Brazil

Fábio Krykhtine

Federal University of Rio De Janeiro

Email: kryhtine@poli.ufrj.br
ORCID iD: 0000-0002-3318-4892

researcher, Fuzzy Logic Laboratory

119 R. Antônio Barros de Castro, Rio de Janeiro, 21941-853, Brazil

Carlos A. Nunes Cosenza

Federal University of Rio De Janeiro

Email: cosenzacoppe@gmail.com
ORCID iD: 0000-0002-2911-6184

researcher, Alberto Luiz Coimbra Institute for Graduate Studies and Engineering Research

119 R. Antônio Barros de Castro, Rio de Janeiro, 21941-853, Brazil

Vinícius Costa Silva

Federal University of Rio De Janeiro

Author for correspondence.
Email: vcosta@poli.ufrj.br
ORCID iD: 0000-0001-8894-2200

researcher

119 R. Antônio Barros de Castro, Rio de Janeiro, 21941-853, Brazil

References

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