Inquiring minds want to know: what’s up with the collapsing price of Urals crude and can it ever find its way to market?
Here’s a short summary from someone in the know (with my emphasis):
Russia supplies crude/products via pipelines direct to customers and via the sea.
Under sanctions, movements likely go the way of Iran. Some might take product (China), but most won’t and certainly nobody with US assets. Waterborne freight becomes problematic as insurance and shipping companies want to avoid sanctions, but pipelines will generally flow if the end consumer is ok with it.
This is a lose-lose scenario as neither the west can easily live without the oil and russia will rapidly build inventory domestically to the point of tank tops and shut ins. It’s obviously even more acute with Nat gas supply and politicians have said they won’t be targeting energy supply distruptions.
But even so, the general reluctance to buy urals this week (and the huge discount) is driven partially by fear of sanctions but also the uncertainty of shipping, banking, insurance companies to facilitate the transaction even if it is technically legal.
Damage wise, be it accidental or purposefully, we are only talking really about logistics that pass through Ukraine, ie Druzhba pipeline etc. Whilst not small, there are enough alternative routes for Russian petroleum to prevent major russian shut ins etc, ie it’s unlikely the ESPO pipeline to China will get bombed or the port of Murmansk shelled.
The only other choke point is blocking off access out of the Black Sea or Baltic Sea. The issue there is you block traffic from neighbouring countries without effective policing, and it might lead to naval warfare with policing states (ie Russia and Turkey in a hot war).
Russia has such a wide diverse set of pipelines and ports to export petroleum that a total shut down of them would seem very unlikely.
And here via Platts is a useful graphic of the pipeline network:
And here’s the Physical Brent vs physical urals discount:
Last, here’s a snapshot of the latest price of “beautiful clean coal”: