The UK has stopped importing fuel and other fuel-related goods from Russia in June. This is the first time that the UK has imported no fuel from Russia. It was the smallest month on record since records began. The UK has pledged to stop all imports of Russian gas and oil by the end of the year. The drop is particularly worrying since Russian oil is the UK’s largest source of refined fuel.
The recent sanctions have had a dramatic effect on UK-Russian trade. The value of UK-Russian trade has plummeted from PS54mln in June 2017 to PS33mln in June 2022. But the situation is far from over. While sanctions have hurt Russia’s economy, they have also damaged the UK’s. Imports of Russian goods and services dropped by more than half in the UK in June 2022.
The bans have been effective for only a few months, but it has already had a dramatic impact on UK-Russia trade. The government is considering introducing new sanctions against Belarus on July 5, 2022. The new sanctions will restrict Belarus’s access to UK financial markets and prevent the issuance of debts to Russian firms. Currently, the sanctions have a cumulative value of PS330mln.
The Russian oil and gas exports have increased by 5% since April 2022. This growth has been driven by increasing imports of refined oil from non-EU countries. During the first half of this year, Russia has become the UK’s biggest supplier of refined oil.
In the months following Russia’s invasion of Ukraine, the UK sharply reduced its imports of Russian crude and refined oil. In April, the UK imported PS140 million worth of Russian oil. By February, it was importing PS410 million worth of crude and refined oil from Russia. During this time, the Russians dropped to sixth place, and Britain’s imports of other countries, including Saudi Arabia and Belgium, increased.
Even though Russia is the UK’s largest supplier of oil, its contribution to the UK’s energy consumption has remained relatively modest. The UK imports only a fraction of the total quantity of fuel products it consumes. The vast majority of these products come from countries that are more reliable, such as the USA, the Netherlands, Sweden, Belgium, and Norway. Although the UK imports an estimated 5% of its refined oil from Russia, the amount is still significant – about six million barrels of oil are imported by the UK every year.
In the short term, UK oil consumption is expected to decline. This is primarily because of rising prices of Russian oil. Refined oil includes petrol, diesel, heating oil, and kerosene. The UK has said it will stop buying important quantities of Russian petrol by the end of the year and other countries have agreed to do the same. Currently, the UK imports most of its natural gas through pipeline from Norway and Qatar.
Europe’s gas prices soared by 50% in one week following the Russian cut of supplies. On Wednesday, the spot European gas benchmark hit 119 euro/MWh, the highest since at least 2015. Prices have now reached a record high four times higher than a year ago. These high prices are adding to inflationary pressures and pushing central banks to tighten their monetary policy.
There are several possible explanations for the recent price spike. One is that Russia is deliberately under-producing gas to maintain its price advantage. This is similar to the strategy used by OPEC to set production quotas. But by deliberately keeping production low with its captive European customer, it would theoretically inflate gas prices in Europe. However, a Russian underproduction strategy would be undermined if Europe seeks to diversify its sources of gas.
This is the same explanation as why gas prices in Europe have reached record highs. One of the main reasons for the spike is the fact that cheap Russian oil has made Europe’s gas supply more volatile. It’s also a political problem. As a result, the EU needs to boost gas storage in order to avoid a potential shortage. Fortunately, cheap Russian oil has made gas storage more affordable than ever before.
