Who is Blocking the Supply of Oil Needed by Europe?
The global energy crisis and the US anti-Russian sanctions due to the special operation in Ukraine have led to the fact that Europe is now spending about 10% of GDP on energy resources, according to analysts of Black Rock, one of the world’s largest investment companies. The last time the Old World spent this much was more than 40 years ago during the oil crises due to the Arab-Israeli conflict and the revolution in Iran. These anti-Russian actions by Washington and its Western allies have led to a sharp decline in food and energy security worldwide.
Therefore, any incidents with energy supplies to world markets are closely monitored worldwide, and the causes affecting the deepening energy crisis in recent months are being identified.
On March 22, as a result of a strong storm in the Black Sea, the system of the Caspian Pipeline Consortium (CPC), which provides more than two-thirds of Kazakhstan’s total oil exports, was damaged, as a result of which the export of Kazakh oil was threatened.
The CPC oil pipeline, more than 1.5 thousand km long, connects the oil fields of Western Kazakhstan and the Sea Terminal near the village of Yuzhnaya Ozereevka near Novorossiysk, from where oil loaded into tankers goes to the European market. The capacity of the pipeline is 67 million tons of oil per year, and after its modernization to be completed by the end of 2023, the pipeline capacity will be reaching up to 83 million tons.
However, due to abnormally unfavorable weather conditions in March, the CPC was on the verge of stopping. A full stop of the CPC is fraught with the withdrawal of more than 1 million barrels per day from the international market where oil prices are already breaking historical records once again. In these conditions, experts predict that Europe, already experiencing shortages of raw materials and petroleum products due to US-imposed refusal to buy Russian hydrocarbons, will have to resort to such extreme measures as rationing fuel consumption.
On March 22, after wind gusts during a five-point storm on the Black Sea reached 35 meters per second, the Caspian Pipeline Consortium announced that it was temporarily decommissioning a tanker loading unit (TLU-3) near Novorossiysk due to damage detected as a result of a weather collapse in order to repair it. Later it became known that the CPC was forced to suspend the operation of another offshore mooring. On March 23, the head of the consortium announced that the loading of oil at the CPC terminal had completely stopped.
The upcoming repairs are highly labor and technology intensive and will take at least three weeks on one TLU alone, and the full repair work can take up to two months. In this regard, Kazakh oil now has three options to survive this accident. The first is to load some of the oil into the storage facilities (but all of them are already almost full) and wait for the repair to be completed in Novorossiysk. The second is to increase supplies to the ports of the Leningrad Region. The third (most expensive) is to load oil into tankers and transport it to Baku via the Caspian Sea, then reload it into the Baku-Ceyhan Oil Pipeline and deliver raw materials to the Mediterranean coast of Turkey, and then load it back into tankers and take it to the markets. Under these conditions, interruptions in oil supplies are also possible, since it will take time to redirect these volumes, and the crisis in the European market may worsen. The potential volume of falling supplies is equal to 1% of global consumption. Therefore, in the current conditions, this is a very significant share, so force majeure at the CPC will remain a weighty argument in favor of maintaining high oil prices.
Although this deficit is local and will mainly affect Europe, the supply of oil on the world market may decrease due to the accident at the CPC marine terminal. Taking into account the fact that the main buyers of Kazakh oil shipped through Novorossiysk are Italy, the Netherlands, France, Spain, Romania, and Greece, it is these countries that will look for CPC oil volumes that have fallen out of the market from other suppliers. Market participants will look for grades similar in properties to CPC oil. For this reason, most likely, the Europeans will increase purchases of American or Middle Eastern oil.
In addition, the CPC accident in the Black Sea may have an impact on the OPEC+ deal, since Kazakhstan participates in the oil deal and, apparently, will not be able to increase the production of “black gold” in the next two months. In addition, the falling volume of 0.8-1.2 million barrels per day is equal to two to three months of the planned OPEC+ increase in oil production.
It should be particularly noted that, in addition to the weather factor, Kazakhstan’s reduction in the amount of oil supplied to the European market is due to delays in the repair work as a result of the unscrupulous behavior of Western partners who refused to supply mechanisms damaged in the storm. “Even despite the advance payments that were made in December, today Imodco, Blue Water and Gall Thomson (former foreign suppliers) have officially informed CPC that they refuse to cooperate further, and deliveries will not be made,” CPC General Director Nikolay Gorban said. Thus, Western suppliers have demonstrated not only to the CPC, but also to the whole world their unreliability as business partners, and therefore, it is unlikely that anyone will trust them with mutual cooperation after the current US sanctions frenzy ends. And it will certainly end, since Western countries themselves are already suffering more from anti-Russian sanctions, and riots of discontent among the population in them will inevitably lead to a change not only of the sanctions policy, but also of governments in a number of states.
Kazakh companies practically did not suffer from the disruption in the work of the CPC, and from a financial point of view, they may even have won due to the fact that as a result of restriction of shipments through the CPC, oil prices have increased. The US-based Chevron preferred to reduce production at its facilities in Kazakhstan, and redirect oil to be pumped into storage tanks, i.e. it actually stopped exports to the world market.
However, the role of the United States in the energy crisis that has engulfed Europe in the last month, and with it the whole world, deserves a special mention. Today it is an open secret that the United States, which has pressed almost the whole world into imposing sanctions on Russia in order to eliminate it as an important competitor from the gas and oil market, is getting richer through this. Having unleashed a sanctions war on Russia, US Treasury Secretary Janet Yellen was forced on April 6 to officially admit that the cost of energy is growing due to the economic sanctions imposed on Russia by the United States. She noted that the problem with blocking oil exports from Russia is that many countries, including Europe, are heavily dependent on it. “And we will probably see a rapid rise in prices if we introduce a complete ban on oil,” she added.
Residents of almost all European countries and many politicians actively oppose the embargo on the imports of Russian energy resources demanded by the United States from the EU today. In particular, according to Handelsblatt, the head of Deutsche Post, Frank Appel, noted that the consequences of such an embargo would be devastating not only for Germany, but for the whole of Europe. In such a scenario, there will be a threat of closure of entire industries and mass unemployment, he added.
Recall that the United States announced on March 8 the introduction of a ban on the import of Russian oil, as well as a number of petroleum products, liquefied natural gas (LNG) and coal. The UK followed suit and announced that by the end of 2022 it would stop importing oil and petroleum products from Russia.
At the same time, having forced the Europeans to impose anti-Russian sanctions, the United States itself not only continues to import oil from Russia, but also increased its supplies by 43% at the end of March up to 100 thousand barrels per day! In addition, Washington, while demanding that the Europeans impose sanctions on Russian mineral fertilizers, allowed its companies to export them from Russia, having recognized them as “essential goods.”
Russian oil supplies to the United States show that Washington is solving its geopolitical problems at the expense of its European allies, international experts told the Global Times. And as an indisputable confirmation of such words, the publication notes that, against the backdrop of the pressure exerted by the United States on its allies in Europe to abandon Russian oil, Washington is increasing crude oil supplies from Russia by 43%. “Out of the need of reality, the US buys Russian energy at a cheaper price and sells them to Europe at a higher price to serve the interests of domestic oil interest groups. In the end, Europe becomes the victim – European wealth flows to the US and helps consolidate the dollar’s advantage against euro,” the publication emphasizes.
This pirate-like policy of the Biden administration leads to even greater impoverishment of ordinary Europeans. But how much longer they will tacitly tolerate openly hostile actions by the United States towards them, only time will tell.