Asia will become the default market for Russian oil as the country tries to find buyers for its energy exports, said Dan Yergin, vice chairman of S&P Global.
Major oil importers in Asia like China and India have been pressured by oil prices which have soared since Russia invaded Ukraine in late February. Besides the appeal of cheaper Russian oil, both Beijing and New Delhi have close ties with Moscow.
Yergin told CNBC’s “Street Signs Asia” on Monday: “It does look like Asia would be the default market for barrels of Russian oil that would have normally gone to Europe.”
The West has punished Moscow for the invasion economically with the U.S. banning Russian crude, the U.K. planning to do the same and the European Union weighing similar measures.
Yergin added, “There’s a lot of self sanctioning that’s going on that’s simply people not picking up oil, banks not providing letters of credit, shippers not showing up and, indeed, people in some ports not receiving Russian oil.”
That leaves Russia with excess crude that is difficult to sell and that situation is likely to worsen, analysts said. Russia, part of the OPEC+ alliance, is the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia, according to the International Energy Agency.
“I would have said five weeks ago Russia’s an energy superpower … I think it’s still going to be an important player. But it’s going to be a reduced energy power compared to where it was before,” Yergin said.
Earlier this month, the IEA said Russian crude is being sold at record discounts. A couple of commodity trading firms recently offered discounts of $30 and $25 per barrel for the Urals blend, according to analysts.
In contrast, prices for other countries’ energy exports have spiked to levels not seen in over a decade. Oil prices are around 80% higher than they were a year ago and have been volatile since the war began.
Traditionally, India gets its crude from Iraq, Saudi, Arabia, the United Arab Emirates and Nigeria – but they are all dictating higher prices right now as oil prices soar.
Industry observers have told CNBC that there’s been a significant” rise in Russian oil deliveries bound for India since early March after the Russia-Ukraine war began — and New Delhi looks set to buy even more cheap oil from Moscow.
“India, as you know, imports 85% of its oil, so it’s a real shock for the Indian economy when oil prices go up,” he said.
“India’s talking to Russia about buying oil at a considerable discount … but it’s a complicated logistical system that moves 100 million barrels a day of oil around the world and to rejigger that, it’s not going to go smoothly,” said Yergin.
Correction: This story was updated to reflect Dan Yergin is now vice chairman of S&P Global.