Russia is throttling back capacity on a major pipeline that sends crude oil to global markets, driving prices higher and raising fears that Moscow was prepared to retaliate against western sanctions by curbing its own energy supplies.
International oil prices yesterday rose by more than 2 percent to $117 per barrel immediately after the pipeline announcement before falling back to $115 a barrel.
Financial Times reported that Russia’s deputy energy minister, Pavel Sorokin in an official statement on Tuesday indicated that up to 1 million barrels a day of oil shipped through the Caspian Pipeline Consortium’s pipeline from central Asia to the Black Sea could be cut for up to two months while repairs are made to storm-damaged loading facilities.
The supply interruption comes on the eve of US president Joe Biden’s trip to Europe, where EU countries are expected to discuss imposing sanctions on Russia’s oil sector in response to country’s invasion of Ukraine, following the already placed ban on Russian petroleum imports by the United States.
Analysts raised questions about the timing of the reported storm damage, as none of the pipeline’s western partners had been able to inspect the facilities.
“If a storm shuts down infrastructure or if Russia shuts down infrastructure, Russia can decide when it reopens infrastructure,” said Bala Zaka, an Energy consultant.
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The most intriguing part of it all is that the pipeline which runs 1,500km from the massive Tengiz oilfield in western Kazakhstan to the port of Novorossiysk on Russia’s Black Sea coastline, includes oil produced by US supermajors Chevron and ExxonMobil. Russian crude also feeds the line from oilfields along the route.
The total pipeline capacity is about 1.4million b/d of oil; that is about 2.5 per cent of global seaborne oil trade and accounts for around two-thirds of Kazakhstan’s oil exports, making it a vital artery for the country’s economy.
Caspian Pipeline Consortium (CPC) said in a statement that “current market conditions”, an apparent reference to recent western sanctions, would make it harder to fix parts of the port loading facilities damaged during a recent storm, meaning that shipments could be cut by two-thirds.
“Russia can make it very difficult for repairs to occur given the challenges it’s currently facing to sell its own oil,” said Omobola Adu, Senior investment officer and research analyst at Afrinvest.
A Biden administration executive order this month banned the import of Russian crude into the US but exempted oil that flows through the CPC pipeline as long as it was certified as coming from Kazakhstan.
Mike Wirth, Chevron’s chief executive earlier this month indicated that the CPC pipeline was an important source of supply into a world which right now really needs oil supply.
“ExxonMobil and others have continued to ship through it,” he said.
The Russian state is CPC’s largest shareholder with a 24 per cent stake. Chevron and Exxon are among the other shareholders with 15 per cent and 7 per cent stakes, respectively. A joint venture between Russia’s state-controlled oil producer Rosneft and Shell owns another 7.5 per cent stake.
Chevron on Tuesday said it was assessing the situation, while Exxon referred queries to CPC.
Analysts predict that, should the West move to increase sanctions on Russia, such moves could trigger a devastating retaliation from Moscow.
