Can Russia help fill the global energy gap?

[0:14] I'm Rishad Salamat. This is Counting the Cost on Al Jazeera. We're looking at the global economic impact of the war in the Middle East. One nation that's hoping to gain from the Middle East conflict is Russia, the world's third biggest oil producer. Higher crude prices due to the disruption in the Strait of Hormuz have allowed Russia to earn more from its oil and gas exports. The U.S. has temporarily eased sanctions on Russian oil, but the European Union has refused to do that, saying more revenue will embolden Russia's efforts to prolong its war in Ukraine. [0:44] But the revised budget plans are at risk following repeated Ukrainian attacks on ports and oil refineries. Russia has banned petrol exports to protect against domestic fuel shortages. So can Russia help fill the global energy gap? Or is its capacity already under threat? [1:00] Russia is seeing a turnaround in its economic prospects as oil and gas prices rise and its tankers benefit from U.S. sanction waivers. While the European Union is holding on to sanctions, is there a new appetite in Europe for Russian oil and gas? [1:20] The increased revenue is expected to help close budget holes as well as bolster Russia's war plans against Ukraine. But Kyiv has accelerated its strikes on Russian oil infrastructure. Will Ukrainian attacks limit Moscow's ability to stabilize the global energy market? We have a panel of guests to discuss all this shortly. But first, here's Fintan Monaghan's report. [1:40] The war in the Middle East has raged for more than a month. Disruption to shipping through the Strait of Hormuz has cut off 20% of the world's oil and gas supply. [1:53] But for one, the chaos could provide an opportunity to come out ahead. [1:58] Now that the prices of our traditional exports are rising, but the markets are in turmoil, there may be a temptation to take advantage of the situation to generate short-term gains. I would like to emphasize it once again. We must exercise common sense. [2:19] Russia is one of the world's largest producers of oil, number three behind the United States and Saudi Arabia. [2:25] It relies on oil and gas revenues to fund around a third of its national budget. Up until 2022, it provided around 10% of global supply. But the war in Ukraine upended Russia's economic model. Western powers imposed sanctions that closed off many key markets. Russia continued to sell oil to partners like China and India, but had to do so at a discount. The Iran war has changed that arithmetic. Fuel prices are surging as countries rushed out bid each other to access suddenly low-income oil. [2:56] The result has been a windfall for Russia. Years of war and sanctions had squeezed Russia's finances. Oil and gas revenues were down to $10 billion in the first two months of the year, a 47% drop compared to the same period in 2025. The Kremlin was reportedly planning a 10% cut to all non-security spending. But now, analysts predict Russia could gain an additional $45 billion in budget revenue this year. If the war drags on for more than six months, it could be a big deal. [3:27] In the next six months, that could reach as high as $151 billion, enough to replenish state coffers and maintain war spending for years to come. The need to stabilize global energy markets has also benefited Russia. The U.S. loosened sanctions on Russian oil that's already at sea, freeing up around 100 million barrels for sale. Europe shifted away from Russian energy, but the current crisis has created pressure to reverse that policy. So far, the EU is resisting that temptation. [3:59] The Russian economy is not doing well. Even the oil price hike is not helping them as much as they need. They have huge issues with recruitment of new soldiers to their army. So we have to see that this is the picture that we can't give up now. We actually have to increase the pressures. [4:21] Ukraine is also keen to undermine Russia's advantage. It's stepped up attacks on oil export hubs. [4:29] Ukraine's oil export capability is now compromised, according to the Reuters news agency. Kiev strikes at damaged refineries, causing fuel shortages in some regions. Moscow has responded by imposing an export ban on petrol. Ukraine's allies have been seizing tankers belonging to the so-called Russian shadow fleet, carrying oil in violation of sanctions. Russia has downplayed the impact, but warned it could make the global energy crisis worse. [4:57] Ukraine's attacks are creating, amongst other things, a lot of pressure on the Russian economy. Russia is also keen to undermine the Russian economy. It's stepped up attacks on oil export hubs. Ukraine's allies have been seizing tankers belonging to the so-called Russian shadow fleet, carrying oil in violation of sanctions. Russia has downplayed the impact, but warned it could make the global energy crisis worse. [5:02] Ukraine's allies have been seizing tankers belonging to the so-called Russian economy. Russia is also keen to undermine the Russian economy. Russia is also keen to undermine the Russian economy. Russia is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Russia is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also keen to undermine the Russian economy. Ukraine is also [5:35] new Eurasian strategy center and has previously worked with NATO and the [5:39] Russian oil and gas industry. And in Berlin is Maria Pashtukova. She's an [5:43] expert in energy geopolitics and diplomacy as well as the program lead at [5:48] E3G. It's an independent think tank focusing on energy policies globally. [5:53] First of all, Vyacheslav, let's start off with you. What kind of state is the [5:57] Russian oil industry actually in? Yes, actually so for a decade or so [6:04] Russian oil industry was a subject of coordination. I'm talking about the [6:09] production of oil, of course, within the OPEC Plus platform. And now I think [6:15] because of the situation in the Gulf, so this agreement and actually [6:20] restrictions on production, they don't work anymore. So I think, so the [6:25] production is there. So Russia possess some additional volumes to produce. And [6:31] there are two crudes actually, two market crudes, like [6:34] Europe, which is normally should go to the West side and actually ESPO is [6:41] called after the pipeline, East Siberia Pacific Ocean, which goes to the Pacific [6:48] Ocean. Actually, I think that's the direction Russia could increase because [6:55] the demands is in Asia Pacific and actually South and East Asia. And it [7:01] amounts around 80 billion, 80 million tons. [7:04] a year. And in general, I think Russia could add and ship additional crudes to this direction. [7:13] On top of that, there are some cargoes which were a subject of sanctions already on the routes. [7:20] And I think OFAC and generally American administration gave permission to key buyers [7:26] like India to get this crude. It was about 50 million barrels, I think, which already sold. [7:33] So in the first month and the permission, if I'm not wrong, is 11th of April will be [7:43] shut. So I'm not sure about whether they go on prolongated, but if so, so Russia could deliver [7:49] more Euro crude to India as well. Maria, the same question for you. And of course, we're looking at [7:54] all this in light of many attacks by Ukrainian drones on Russian oil facilities. Yeah, sure. [8:02] So what I would say is that the serious bottleneck right now is [8:05] the availability of Russia's export infrastructure. Its exports fell already by [8:11] about 400,000 barrels month to month in February. That was even before the latest [8:16] Baltic escalation. And then the March attacks on Primorsk and Ostluga hit the export system much [8:21] more directly. What we're looking at is approximately 40% of Russia's crude export [8:26] capacity that has been affected, not of all of that taken out completely, but some parts of it. [8:32] So the Russia's Western export system has [8:35] been impaired quite a bit. And given that there are export constraints on the Eastern track, [8:41] because most of the capacity towards the East is already at maximum or close to maximum, [8:49] it is a big question whether Russia will be able to boost its exports at all, [8:53] will have actually to cut production, both of crude and petroleum products, because particularly [8:58] the Western ports were responsible for some exports of Russian petroleum products. In that [9:05] sense, it is a big question whether Russia will be able to boost its production. [9:08] And it has never been a big swing state. So boosting production on a short demand has [9:15] never been Russia's forte. Even if it would have been possible, it's a big question whether it will [9:20] be able to get it out. We do not know the extent of the damage done fully yet. We might be looking [9:25] at several weeks. We might be looking at some parts of that capacity being out of operation [9:31] for some months. So I would say [9:35] Russia cannot really meaningfully help offset the global energy disruptions, [9:40] particularly on oil, in the short or midterm. Because what we're looking at is, it is not all [9:47] of the 20 million barrels a day that normally exit hormones that are locked right now. I think we're [9:52] looking at about 10, 9 to 10 million barrels a day of global oil shortage, because a significant [9:59] part of that is still getting out via land and sea. But also Iran keeps [10:05] exporting almost at capacity to China. But still, it's about 10 million barrels a day, [10:11] it's about 10% of global oil demand. Russia can in no meaningful way replace these cargoes. [10:19] John, two quite opposite views there. What's your take? [10:23] Well, my take is that Russia is going to struggle to increase production significantly, both in [10:30] short term and medium term. Short term, I think probably over the next year, it could do another [10:35] probably additional 5%. [10:36] Something like that. It would then have to drill a lot more wells. And then you'd be looking maybe [10:42] at another 5% in a year's time. So I tend to agree with you that Russia's ability to fill the gap [10:49] here is going to be somewhat limited. And indeed, we've got also the fact, as Maria was saying, [10:55] that these export terminals have been damaged recently. It's difficult to know how long it's [11:00] going to take to repair those, but there's certainly going to be some short term impact. [11:04] So I think relying on Russia to [11:06] be a sort of swing supplier in these conditions is really rather optimistic. [11:13] Vyacheslav, your take on this. I mean, the thing is that Russia produces the right kind of oil as [11:19] well. And how much of that is their spare capacity? [11:24] I'm not sure about whether I can answer this question, but I would like to stress [11:28] that since we're talking about the volumes, I think the strategy at the moment [11:33] shouldn't be just about the volume. Because economically, [11:37] I think we, I mean, like Russian producer, so we don't need to satisfy all the demands. [11:45] So I think the key element of this is economic efficiency of the trade, because the crude, [11:52] and especially Russian crude, has now, so because of the spread, because of the physical markets and [11:59] future market spread, so the physical volumes are being traded with the premium now. And I think [12:05] Russia could gain and, actually, I don't know, I don't know. But I think Russia could gain and, [12:07] actually, sell probably not too many destinations and not a big volume of crude, but [12:14] with a high economic efficiency, I think getting more commercial value of this. [12:20] So I think this is the strategy we should bear in our minds. [12:25] John, so let's just turn it this other way. Is Europe actually reconsidering the use of [12:32] oil from Russia? And that would go really against the grain for many countries in Europe, [12:38] including the likes here of, let's say, Hungary? [12:40] Well, the European Union is committed to phasing out its fossil fuel imports [12:48] from Russia over the next, what, year, 18 months. Now, this crisis is certainly, [12:55] I think, going to concentrate mines in some European capitals. The, I think, [13:00] probably major attraction might be to import additional Russian gas. I mean, [13:06] Russia has still been exporting gas to Europe since [13:09] the start of the war in Ukraine, but at much, much reduced volumes. [13:15] Before the war started, it was, what, up as high as 180 billion cubic meters per year. [13:21] And last year, I think it was down to about 18. So there's been a dramatic change here. [13:28] That's pipeline gas and still some significant volumes of liquefied natural gas, LNG. [13:34] But I suspect that some European countries are really going to start to feel the [13:39] pinch next winter if this crisis persists. So that question will certainly be opened up again. [13:45] But then we come up against the question of how to manage this war in Ukraine, [13:50] how that might be playing out, and whether the perception that contributing [13:55] more significantly to Russian budget revenues, just at a time when Ukraine is running short of [13:59] money, and European countries might be, in fact, struggling to support Ukraine in the same way, [14:05] is going to create, I think, a real headache for some European leaders. [14:08] Maria, how much politics is going to play into [14:13] what's going on in Europe as they look at Russian oil and gas? [14:18] Well, I think John's right that the European course overall will not be changing, [14:23] or it doesn't seem to be changing, even under this very real economic pressure. [14:28] This is definitely not the same as reversing course. There are, of course, [14:31] some rhetorics, particularly in the right to lean populist parts of the national party landscape, [14:39] especially in Germany. AFD is, of course, as always, pushing for strong relations with Russia. [14:44] But this is not mainstream within most governments. Hungary, of course, is an exception, as always. [14:50] But the shift away from Russian oil and gas is real strategically. It has been since 2022, [14:58] and this has remained so. The Commission says that the remaining roughly 35% of Russian gas [15:03] should be out of the European markets in under two years, and the 2% of Russia's oil exports, [15:10] that are remaining by pipeline in 2025, should be phased out completely as well. [15:16] It is not just the political rhetorics, and that is quite clear. We hear Dan Jorgensen, the [15:21] energy head of the European Commission, saying that what needs to be in the focus is cushioning [15:27] the shock to the consumers, but standing by its Russian gas phase-out, the European Russian gas [15:33] phase-out target. But the reality is not just the political. The reality is also that, in terms of [15:41] the legal constraints and the market constraints, it is not that possible for the EU to go back to [15:47] any considerable uptake of Russian oil and gas. There are regulations that both prevent major [15:55] exports or reviving of exports that are not streamed, because that pipeline has not been [16:01] unbundled yet and is wholly owned by Gazprom. That has been the problem before. It has been [16:06] put out of commission. There are market constraints, because during the [16:12] restructuring after the Ukraine war, Europe has already diversified significantly towards [16:18] Zimbabwe, Algeria, Norway, and the US. And part of its portfolio is blocked by those suppliers. So, [16:23] for Russia, there is not that much place to return to anymore. As John says, there is some maybe [16:29] short-term uptake, you might be saying, over the Tukstream pipeline, because that one, the European [16:34] branch of it, is currently underused. And there is some additional capacity that can be used by Russia. [16:41] So, there is a lot of demand from the Eastern European countries, especially in the short-term. [16:45] LNG picture looks different. Russia is exporting at capacity from terminals that are not under [16:51] heavy sections. Arctic LNG2 that could bring potential significant capacity to the market [16:56] is still very restricted on the sections. It's exporting just above 10% of its full capacity, [17:03] and most of it to China. So, there is no real sign or no show of that reality changing. [17:11] And I would say European course is not changing so far. We'll see what happens in the next month [17:16] or two. Of course, it all depends on how long the conflict and the closure of Strait of Hormuz [17:21] persists. But right now, it remains quite firm on phasing out Russian fossil fuels completely. [17:26] How much does Russia actually need this money, this revenue, and can higher oil prices really [17:33] ultimately offset reduced export volumes? I cannot answer this question on the budget. I'm not sure [17:41] the numbers, but I think... So, again, I think the strategy, the short-term strategy is actually [17:48] to sell on the higher prices and to get the most economic values from the operations or the export [17:56] operations within this timeframe, actually. And so, I think budget is getting now much better [18:02] because the previous months were quite upset because of the sanctions and because of the [18:09] prices, which were quite... [18:11] Well, actually, previous, I'm talking about 2025. But now, I think it's getting better, [18:18] and the revenues are coming. As I said, Russian crude available, physically available, [18:24] is being traded with a premium to the benchmarks. And that's the good signal for the budget. [18:35] John, how critical is energy income for funding Ukraine's war plans? [18:43] Indeed. I'll look at it this way. Of course, oil revenues are a significant part of [18:52] the Russian budget. And Vyacheslav is right that in the first quarter of this year, [18:59] oil revenues were significantly down on where they'd been in the first quarter of 2025, [19:08] from memory, around something like 50% down. And this was starting to create a budget crunch. [19:14] The Russian government was seriously discussing cutting large parts of the budget by 10%, [19:21] leaving defence spending, social spending unaffected. So, it was clear that this [19:26] combination of sanctions and lower oil prices were starting to have some real effect and making [19:30] it much more uncomfortable to continue fighting the war. But it has to be said that this war is [19:35] not hugely expensive for Russia. When we talk about the country being on a war footing and [19:40] having a war economy, I think we have to be careful, because it's not... [19:45] consuming a vast amount of GDP, whether it's, I don't know, 6% to 8% or something like that. [19:51] But given the country's at war, it is really not a massive investment, as one would expect. [19:59] However, of course, the increased oil revenues are going to reduce the pressure on the budget [20:06] generally. That's going to make, I think, the Russian public feel that it's not critical to find [20:15] an immediate end to this war, that the country can go on for a good long while, and certainly [20:19] the political leadership will see it that way. But I think there is the additional benefit here [20:24] of the fact that some European countries are going to struggle, I think, to make the case [20:30] to their publics that they need to keep supporting Ukraine at current levels, and are possibly going [20:36] to have to do more for Ukraine, given that obviously the US is no longer prepared to provide [20:42] either economic assistance or military assistance. So, I think that's going to be a big challenge. [20:44] But at the same time, I think that's going to be a challenge for Ukraine in terms of its [20:48] military assistance, Ukraine. So, that puts the burden on Europe to procure weaponry for Ukraine [20:53] from the United States. This is going to, I think, create more of an issue in some European countries, [20:59] and Maria was rightly referring to the rise of the far right in certain European countries. [21:06] We can hear voices in France and Germany critical of this investment in Ukraine's defence. So, [21:12] I think there is another aspect here for the Russian leadership that we need to consider, that [21:14] is going to struggle um at least in the foreseeable future to maintain this level of support for [21:20] ukraine maria could one of the things which results from this uh that some of these gas [21:26] fields in particular and perhaps some oil ones which were uneconomic could become economic if [21:32] this disruption lasts for a long time and oil and gas prices remain elevated well this is a good [21:37] question um i i would be cautious about that because uh for some time and i would defer to [21:44] vetroslav of course for a more concrete picture but there have not been major oil discoveries in [21:49] russia um that can bring some considerable revenue if deployed today um i think when the russian oil [21:55] industry sees that russia's oil oil fields are are pretty mature a lot of them um and um also given [22:03] the overall constrained investment climate and what we should not be forgetting the global economy [22:08] is heading into an economic crisis the investment conditions are very likely to worsen for every [22:13] kind of energy not to [22:14] just uh um including including fossil fuels of course including oil and gas um in that sense [22:20] it is quite hard to predict if there will be any uptick in in russian um additional oil production [22:26] of course there are other producers out there that might benefit from from this um demand for [22:32] non-gulf oil and gas the yes is probably the biggest winner given that they can ramp up their [22:37] shell fairly quickly and it responds to higher prices um and then there are some uh atlantic [22:44] or [22:44] samsung producers across the atlantic outside of the us including brazil vienna and canada that might [22:49] be able to pump a little bit more if they they um fast-track the projects that um have not been [22:56] approved they are in the approval process already but there is really not that much spare capacity [23:00] uh that can be boosted in the near or midterm and the investment climate [23:05] and the overall demand projection for global oil and gas demand is really not that rosy [23:09] for for some major uh very capital intensive investment decisions to be taken or [23:14] on new exploration or new fields in that sense i think my answer would be rather no okay i mean [23:21] that that to you know vyacheslav here as well can some uneconomic fields become now profitable and [23:28] sustainable but of course this is going to be contingent on how long prices do remain high [23:34] yes but i would i would like to reverse a little bit the situation because the market is first [23:39] i know that in the us and in russia nobody wants to invest massively [23:45] just because of this situation so i think we should look at the medium and long-term uh actually [23:52] market movements and i think this is short-term situation doesn't give any any signal to the [23:58] investors and to the upstream sector but since the situation will be uh will be going that way [24:06] and of course it depends on how how strong will be the damage on the gulf production and the next [24:15] next period after the war i think then the signal will come there and i think we could expect some [24:22] investment decisions actually not only in russia but in general in the upstream sector and of [24:28] course it needs uh to actually to agree with uh with the buyers so on the long-term relations [24:35] because since we're talking about the crisis and the situation now it's just brief uh and quite [24:41] momentum and this is a spot mark and and and i think it's going to be very important for us to [24:45] in general but since we're talking about long-term cooperation i think the investments are there [24:50] but they should be based on the contracting and on the long-term contract agreements absolutely and [24:57] if you look at the futures curve you see prices much much lower actually as well but john i want [25:02] to get your take on on this as well you know if the war was to come to an end tomorrow what would [25:08] that mean for prices and would they go down really quickly or given that you know russia still has [25:14] problems it still has not come to an end i think it's going to come to an end i think it's going to [25:15] reach its capacity and it's been its refineries are being uh bombed by the ukrainians would high [25:21] prices be elevated for quite a while from now on well my understanding is that if the war were to [25:28] end tomorrow it would take probably up to 10 months for markets to stabilize um in other words [25:37] for you know supplies to to be rerouted and uh for if you like the sort of previous uh arrangements [25:45] to to recommence [25:47] so that that is a long period so during during that time we would probably expect to see prices [25:53] relatively elevated and that would be advantageous to russia because the problem is and we have to [25:59] consider the fact that if prices were to go excessively high let's say i don't know 150 [26:05] then we would probably see some fairly dramatic uh destruction of demand [26:10] and that then uh reduces the opportunity for producers such as russia to to benefit [26:16] from increased prices so there is some sort of balance here i i think to be achieved if if uh [26:22] russia and others want to want to gain from uh this current uh disruption but the you know the [26:29] signals so far are that there is no easy way for the united states to exit this situation in iran [26:37] that nobody has any sort of solution for how to deal with the uh strait of hormuz other than [26:43] perhaps persuading the iranians that it will be a good idea [26:46] to actually uh revert to previous arrangements but who's going to do that is it going to be the [26:51] chinese because it really doesn't look feasible to um open the strait by military means john law [26:59] thank you so much viacheslav michenko and maria pashukova thank you so much for joining us and [27:08] that is our show get in touch with us on x at richard tv and do use the hashtag ajctc when you [27:14] do or drop us an email counting the cost of algebra.net is our address [27:20] but there is more for you online at aljazeera.com ctc that'll take you straight to our page which [27:25] has individual reports links and entire episodes for you to catch up on that is it for this [27:32] edition of counting the cost i'm rashad salamat from the whole team in doha thank you for joining [27:37] us aljazeera's coverage of the war in the middle east continues in just a moment