European officials came to an agreement this week for the partial ban of Russian oil imports that is set to ban 90% of Russian oil imports by the end of 2022. The ban covers more than two thirds of oil imports from Russia as Europe and others look to cut financing of Russia’s war against Ukraine.
Russia accounted for 23% of Europe’s total oil imports last year with Germany, Netherlands, and Poland the largest importers followed by Belgium, France, Finland, and Italy. The remaining 10% that are not being affected are the southern segment of the Druzhba pipeline which includes Hungary, Slovakia, and the Czech Republic.
Losers of the Ban
The ban was harsher than many expected with the European Union also blocking insurers from covering Russia’s cargoes of crude oil. Since European firms insure most of the world’s oil trade, the ban will cover tankers shipping oil anywhere around the globe. Which means this will limit Russia’s ability to sell oil in Asia. The sanctions are a great step in combating Russia’s ability to finance its invasion but Europe breaking its dependence on cheap Russian energy means it is in for a rough time. Europe will now be facing even higher oil prices as there is no readily available source of oil to replace the lost Russian imports.
The losers of this development are clear with Russia taking a massive hit on its ability to sell oil around the world specially with its closest neighbors. Additionally, consumers in Europe and globally will be paying even higher prices at the pump. But while Russian oil is taking a loss, its competitors are set to reap the benefits of one of the world’s largest oil producers being essentially barred from the European market.
Alternatives Set to Take Market Share
The four members of the seven big oil supermajors that are centered in Europe are the first clear winners of this development. BP plc (BP), Eni S.p.A. (E), Shell plc (SHEL), and TotalEnergies SE (TTE) will all look to benefit from the sanctions. British BP and Shell will be in an interesting spot with Brexit while Italian Eni and French TotalEnergies are each headquartered in one of the seven highest oil importing countries in Europe.
Everyone of this four saw its stock price increase Tuesday morning following the news but eventually close lower on the day with investors unsure if additional sanctions will actually significantly help these producers. Meanwhile, U.S. producers ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP) all faced a similar pattern with shares rising Tuesday morning before closing down on the day.
One big winner from the sanctions may actually end up being India with Asia taking a larger share of Russia’s oil exports and China having yet to increase imports. Alternatively, India has been buying large amounts of discounted Russian oil barrels and refining it to export gas to Europe. Indian refined product exports have now been hovering around all-time highs as a result with India becoming a refining hub for Europe.
The Indian Oil Corporation and Mangalore Refinery and Petrochemicals have both seen their stock price rise following the sanctions levied against Russia as increased refining and exporting to Europe is expected. Neither stock trades in the United States.
Wrapping Up
Europe’s ban of Russian energy imports is another important step in crushing Russia’s ability to finance its war against Ukraine. However, the effects might not be seen initially with Russia still exporting to Asian countries and refined products for Russia remaining unchanged near 4 millions barrels. Additionally, consumers will be paying the price for the sanctions literally and oil companies aren’t exactly fearing the idea of higher gas prices. No clear winner may stand out but energy stocks look poised to continue outperforming the market.
