World Better Prepared for Russian Energy Weapon in 2023

January 29, 2023
By Kostis Geropoulos/NE Global

China’s demand for energy, the amount of Russian oil that will be cut from the global supply, as well as the response of OPEC+, will be key factors in determining where the oil price trades in 2023.

Nearly a year after Vladimir Putin launched Russia’s ongoing war in Ukraine, several countries have accelerated the diversification of their energy supplies.

“One of the key elements is obviously Putin’s invasion of Ukraine. He can adjust the war’s intensity at any time, and make life more difficult,” Justin Urquhart Stewart, co-founder of London-based financial services company Regionally, told NE Global by phone. “The global economy is growing, but slowly. Demand is going to be slightly stronger, but not dramatically. Over the past year, a lot of governments have quite rightly been searching around the globe for alternative sources of fuel and suppliers. That means the threat of (energy weaponization) by Russia will not be as strong as it was before.”

Oil prices may occasionally peak in the short term but will not continue to rise as overall global economic growth is going to be weaker, meaning there may be areas where there is a surplus.

Shortly after the start of the new year, traders remain undecided about the ‘Chinese question’ and are clearly nervous about the threat to China’s economic activity if another strain of COVID emerges.

Chris Weafer, the co-founder of Macro-Advisory in Tashkent, Uzbekistan, told NE Global: “The experience of the past three years requires that prudence, rather than optimism, needs to be employed until the picture becomes clearer. That may come after Chinese New Year, when the traditional mass movement of people will either result in a surge in cases, leading to further restrictions, subdued economic activity and stagnant energy demand, or it could lead to a collective sigh of relief, a faster reopening of the economy and strong growth in energy demand … The former will continue to weigh on the oil price, keeping Brent in the low-$80s to mid $90s through the first half of this year. The latter would more likely see Brent quickly reach $100 to $110 per barrel in the first quarter.”

On the supply side, OPEC will wait to see what the effect will be on Russian oil exports following the EU’s December ban on the import of seaborne crude and the imposition of a price cap. It’s far too early to say with any degree of certainty how much production and exports will be lost as the December export data is misleading due to a surge in exports in the months before December and several Russian ports, such as Primorsk, delayed pre-winter maintenance work.

Thus far, it’s unknown many tankers Russia was able to buy last year, and whether major Asian buyers, especially China and India, will agree to bilateral insurance arrangements with Moscow, or if they’ll find some other solution to allow any tankers to deliver oil. As a result, there shouldn’t be an immediate oil price spike in early 2023 as oil tanks in Europe and across Asia are full. Countries in the EU and across Asia have bought huge volumes from Russia since last summer, with most in Asia benefiting from 25-30 percent price discounts.

The major test for oil will more likely come in late February or March after the EU ban on Russian oil products starts on February 5, a move that is a serious issue both for Europe and for the Russian Federation as the volume of oil is very significant. Despite the Kremlin’s War on Ukraine, and Europe’s military and political support for Kyiv, Russia continued to export an average of 2.8 million barrels per day of products to Europe through November 2021; an amount that equals 20% of Europe’s average daily oil consumption and a sizable chunk of Russian oil export earnings.


The impact on the global oil market will get much more serious from February 5th as the Russian Federation is unlikely to be able to export another 2.8 million barrels because of the lack of export infrastructure.

The total loss of Russian crude and oil products to the global market may reach 2.0 million barrels by late February. The only place Europe can find the lost product volume is India – the sole nation in the world with sufficient refining capacity.

European consumers will pay significantly more for oil products because Russian oil, instead of making the short journey across the Baltic Sea, will now have to sail halfway around the world to Indian refineries, which will then require a long journey up the Red Sea.

OPEC will then have to decide how to react to the loss of approximately 2 million barrels of Russian crude, especially if China’s demand is improving.

Putin’s energy weapon is losing its effect, according to Urquhart Stewart, who said: “I think Putin, particularly if this war continues to run against him, will use whatever non-nuclear weapon he can, obviously this includes oil and gas … Hopefully, we will be ready, with alternatives and other supplies coming through. The Americans have a surplus because of fracking, and they are now exporting. Putin can use energy as a weapon, but it’s not as effective as before.”

Inflation pressure is starting to ease, but interest rates may go up, though in the US the inflation rate has likely already reached its peak. The Americans are focusing on tackling inflation and will do whatever is necessary to curb any further spikes. To ensure this, another interest rate is likely. If the American economy starts to pick up significantly, the country will experience growth, but without much consumer confidence.


The most influential leaders of the OPEC oil cartel, i.e., Saudi Arabia and the United Arab Emirates, have previously shown that they are unwilling to turn on the supply tap to reduce the global oil price.

Although never clearly stated, the indications are that OPEC is targeting an average price of $100 Brent. Below that level, there is no indication that the price is damaging the global economy, and OPEC countries know that the market and OPEC only have approximately 10 years, at best remaining, before the global demand for oil declines to such a level that the price falls to levels seen in the early months of COVID.

OPEC is much more likely not to make any major decision about supply until the trend regarding China’s demand becomes clearer, and how much Russian oil will be taken out of the global market due to sanctions and enforcement of the price cap.

Europe is better prepared for this winter. “I think the red lights have flashed and all wise governments are saying, ‘We need more storage facilities, we will use the opportunity to try to get more reserves in place.’ If we end up with another peak next year, they are far better prepared than they were this time. They had the warning, they searched for alternatives. They have not solved the entire problem but made sure that much of the issue is being managed,” said Urquhart Stewart.


In response to Russia halting its gas supplies to Germany, the first of the three floating liquified natural gas (LNG) terminals – the 90-kiloton Hoegh Esperanza – started supplying natural gas to German industries and 50,000 households via the newly created Wilhelmshaven Connector Pipeline/WAL just before Christmas.

On Jan. 5, to green its economy and replace Russian gas, the German multinational energy company RWE agreed with Norway’s energy giant Equinor to jointly invest in clean hydrogen plants in Germany, as well as a major pipeline between the two countries. The power plants will initially run on natural gas produced in Norway before transitioning to blue hydrogen.

Ever since Russia started cutting its exports to Europe, Norway has ramped up its own exports to help fill the gap. The collaboration between Equinor and RWE has the potential to develop Norway into a key long-term supplier of hydrogen to Germany and the rest of Europe.

Europe is unlikely to run into any gas supply problems this winter, assuming the continent experienced a normal weather pattern. The same cannot be assumed for the winter of 2023/24 or 2024/25. Both future seasons look to be much more difficult if Russian supplies remain at their current low levels.

Europe was able to buy an additional 41 billion cubic meters (bcm) of gas in LNG form this year. Those purchases, plus a reduction in usage, have allowed for the building up of gas reserves to near maximum levels by December.

Additional LNG deliveries, and assuming that Russia continues to ship the approximate 2 bcm it sent in November through the winter months. This should be enough to satisfy demand and prevent any price spikes.

(Kostis Geropoulos is Co-founder/Director of Energy & Climate Policy and Security at NE Global)


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