Disaster-hit Sri Lanka snaps up low-cost Russian oil

Sri Lanka has begun importing massive portions of oil from Russia in a pointy provide shift that highlights how cash-strapped international locations are more and more benefiting from worth reductions created by western sanctions on Moscow.

Sri Lanka, which successfully ran out of gas this 12 months as a consequence of a monetary disaster, has since Could sourced greater than half its crude from Russia, in accordance with knowledge from analytics suppliers Refinitiv and OilX. It’s the first time Sri Lanka has imported Russian oil since not less than 2013, in accordance with knowledge from analysis agency Kpler.

Analysts mentioned Sri Lanka’s pivot to discounted Russian oil mirrored a pattern of financially careworn international locations scrambling to chop import prices within the face of rising inflation and a robust greenback.

After President Vladimir Putin’s invasion of Ukraine in February, the G7 nations mentioned they might part out or ban imports of Russian oil.

India and China have grow to be patrons of Russian oil, more and more joined on a smaller scale by inflation-hit international locations together with Pakistan, Bangladesh and Cuba. All these patrons and Sri Lanka abstained from a UN Common Meeting decision in March that condemned the Russian invasion.

Sri Lanka was “a bellwether of what we will anticipate poorer nations to look to be doing over the following few months”, mentioned Neil Crosby, a senior analyst at OilX. “They’re attempting to scale back their import prices, they’re below financing strain and in that context, Russian barrels look very tempting.”

Since February, Russian Urals crude has on traded at a median low cost of about $30 per barrel to the North Sea Dated benchmark worth, in accordance with knowledge supplier Argus Media.

Sri Lanka’s 7.1mn barrels of crude oil imports final 12 months got here from the United Arab Emirates, however Russia has accounted for two.6mn barrels since Could, about 79 per cent of the overall ordered, in accordance with Refinitiv. Knowledge from OilX confirmed 60 per cent of Sri Lanka’s crude imports since Could has come from Russia.

Thanh-Lengthy Huynh, chief government of knowledge analytics agency QuantCube, mentioned the gross sales to Sri Lanka underscored how Russian oil beforehand certain for Europe was discovering new markets because the EU tried to limit imports.

“The primary two Russian shipments arrived from Primorsk and Novorossiysk, ports positioned within the Baltic Sea and Black Sea, respectively,” he mentioned. “Since these ports traditionally served European ports, they point out the event of recent commerce routes for Russian power.”

Sri Lanka, which defaulted on its money owed in Could, has struggled with extreme shortages. Vitality provides ran so low this 12 months that blackouts lasted as much as 10 hours and drivers needed to queue for complete days for petrol.

A brand new rationing system has eased shortages, whereas authorities revenues from exports and remittances have helped fund imports, together with discounted Russian gas.

Sri Lanka’s state-owned sole crude oil refinery shut this month however is predicted to reopen in a matter of weeks when a Russian crude cargo arrives, an business government mentioned.

Analysts mentioned it was unclear whether or not Sri Lanka was shopping for instantly from a Russian oil firm — which might recommend a government-to-government deal — or shopping for spot cargoes from merchants. Sri Lanka’s former president Gotabaya Rajapaksa in July requested Putin to assist his nation import gas.

A spokesperson for Sri Lanka’s present president, Ranil Wickremesinghe, didn’t reply to a request for remark.

David Fyfe, chief economist at Argus, mentioned steep reductions on Russian crude would proceed, preserving it a beautiful choice.

“The query actually turns into, what are the dangers round insurance coverage, banking, finance, delivery provision [and] further US sanctions?” Fyfe added. “Assuming the present circumstances proceed, in case you have been being supplied crude at $25, $30 per barrel under [the Brent benchmark] . . . why wouldn’t rising economies buy Russian oil?”