Europe redraws black gold map by switching out Russian oil with barrels from other top producers

After the Ukraine crisis struck, the EU imposed sanctions on Russia in the hopes of bringing it to heel and ending the conflict. While the effectiveness of these sanctions is open to interpretation, they did spur the rewriting of the global oil map. With the demand for black gold still going strong, Europe has not curbed its consumption, instead, it replaced Russian oil barrel for barrel by importing more oil from a pool of other producers, such as the U.S., Saudi Arabia, Brazil, and Angola.

The Ukraine crisis gave rise to widespread, numerous sanctions not only against Russia but also against its companies, oligarchs, and specific people, further impacting the energy market, which was caught in a whirlwind of instability ever since the war started on 24 February 2022.

The distancing from Russia, its companies, and products was also illustrated by the measures put in place by the EU to reduce dependence on Russian fossil fuel imports as quickly as possible. In pursuit of this, the EU moved to phase out all Russian oil imports.

As growing energy supply concerns led to increased volatility in oil and gas prices, the EU presented its REPowerEU Plan as a way forward to come to grips with a double urgency, seeking to reduce the EU’s dependency on Russian fossil fuels and fast forward the green transition. In addition, the EU disclosed its plan to ban almost 90 per cent of Russian oil imports by the end of 2022.

Despite the resilience shown by Russia’s upstream sector, which rebounded under pressure caused by sweeping sanctions, Rystad Energy, an energy intelligence group, predicted in August 2022 that hard times lie ahead for this country as “the worst is yet to come,” since the European Union’s embargo on imports coupled with domestic economic challenges mean “major hurdles lie ahead.”

At the start of December 2022, a price cap for seaborne Russian crude oil was announced by the Group of Seven (G7) and Australia, coming on the heels of the EU’s embargo on imports of Russian crude by sea and similar pledges by the United States, Canada, Japan and Britain. At the same time, OPEC+ decided to keep the status quo and its reduced oil output targets.

Recently, the EU enacted a comprehensive 11th package of measures, including significant restrictions on ship-to-ship transfers to tighten the enforcement of existing sanctions against Russia. The new regulations, adopted by the Council, aim to curb circumvention tactics employed by vessels suspected of breaching the Russian oil import ban or the G7 Coalition price cap.

A new study, called New Oil Map: Impact of Russia’s war in Ukraine on supply and demand – carried out by Transport & Environment’s (T&E), Europe’s NGO campaigning for cleaner transport – shows that Europe failed to reduce its oil demand, as it simply replaced imports from Russia with oil from other producing countries. Bearing this in mind, Transport & Environment highlights the EU is missing “a historic opportunity” to slash oil consumption and weaken its reliance on imports.

Agathe Bounfour, oil programme lead at T&E, commented: “In not much more than a year, the EU has redrawn the oil map. The continent has reduced its reliance on Russia, but instead of cutting oil consumption, it is simply swapping barrel for barrel with new suppliers. If it put the same effort into reducing demand as it has in finding new suppliers, Europe could significantly reduce its dependence on oil altogether.”

The study indicates that oil production and exports surged by 5 per cent on the global level between 2021 and 2022, with 65 per cent of the increased exports directed to the EU market. As a result, the EU was a major driver of oil demand over the period, since local demand was recovering and Asian countries were still affected by COVID-19 restrictions. Even though Western sanctions were designed to bite into the Russian economy and take a big chunk, the country’s oil production stagnated in 2022 and early 2023 with figures indicating only a marginal 2 per cent decrease.

While Russia accounted for 31 per cent of European oil imports in January 2022, this fall to 3 per cent by March 2023, following varying sanctions. This does not, by any stretch of the imagination, mean that Europe is ditching oil, as demand is simply being sourced from different suppliers. A look into this shift in imports shows that six countries benefited from the decrease in Russian imports. In line with this, the U.S. replaced Russia as Europe’s number one exporter at the end of 2022, accounting for 11 per cent of the EU imports from 9 per cent in 2021.

Furthermore, Norway and Saudi Arabia followed closely behind the U.S. with 10 per cent and 9 per cent shares in 2022, respectively. Beyond Europe’s traditional suppliers, new ones came to the fore too, as Angola’s monthly exports to the EU grew sixfold, reaching almost six million barrels, while the share of Brazilian (60 per cent) and Iraqi (15 per cent) exports also saw a jump.

In lieu of this, T&Eʼs study underlines that some countries did not merely reshuffle their suppliers from Asia to the EU, as the U.S. notably saw a 6 per cent surge in oil production, of which 70 per cent was directed towards Europe. The analysis of oil field data shows that 80 per cent of the surge in oil exports to Europe came from only ten fields. The largest part of the export growth came from Texas, followed by Norway’s biggest field Johan Sverdrup and Brazil’s Lula field. 

Although new oil projects are still being planned globally and in the key countries supplying the EU, T&E points out that there is a wide consensus from scientists about the development of new oil and gas projects being “incompatible” with the 1.5°C target.

While discussing these pending oil and gas projects, T&E claims that the 200 existing or planned projects are so-called oil and gas “climate bombs,” which will emit more than 1 gigatonne of CO2 over their lifetime and will exceed by far a 1.5°C carbon budget. The study points a finger towards 18 different “climate bombs” which, as it stands, will be supplying Europe with oil at least until 2030.

Moreover, imports of refined oil products from China and India have grown 70 per cent and 13 per cent, respectively, over the past year. Speculation runs rampant about these countries importing Russian oil on the cheap and re-exporting it to the EU as jet fuel and diesel on the global market. T&E warns that billions of euros have flown from the EU to Russia due to such trends while creating a backdoor for Russian oil runs counter to the imposed sanctions.

A wrench has been thrown into Europe’s plans to bring down its oil consumption, as it is 2 per cent higher than it was at the start of the Ukraine crisis. The analysis underscores that enough is not being done to cut down on oil despite a continent-wide effort to reduce gas use, which fell 15 per cent over the period.

“Households have been told to lower their thermostats while the European Commission is advertising gas sobriety. The EU has a plan to cut gas consumption up to 2024. No such plans are in place for oil. With a combination of demand reduction and increased efficiency, Europe can slash its oil consumption by a third,” concluded Bounfour.

The high oil demand is driven primarily by Europe’s transport sector, as road traffic is back to pre-pandemic levels and the aviation sector is set to reach its peak later this year. If Europe achieves its current climate targets, in 2030 oil demand will drop by 16 per cent.

T&E’s modelling shows that Europe can reduce oil demand by a third through a combination of measures such as speeding up the electrification of road transport, implementing speed limits and reducing air traffic.