By John Q. Hosedrinker 
The discount on Russian Urals crude versus Brent surged to $19.40 per barrel on November 10th, the highest in a year, according to Kommersant citing industry sources. This increase followed new US sanctions targeting Russian energy companies Lukoil and Rosneft. Previously, discounts had reached a peak of $31.90 per barrel in the second quarter of 2022. Key buyers like India and China are reportedly reducing Russian crude imports, and declines in exports have been the steepest since January 2024.
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Russia selling oil at year’s record discounts is a stark reality, and it’s a complex situation with a few layers we can peel back. The headline numbers often tell a part of the story, but sometimes they can be misleading. While it’s true that Russia is selling more oil, what they’re primarily selling is unrefined oil. This is a crucial distinction. The destruction of some of their refineries, likely due to the ongoing conflict, is forcing them to offload this crude oil.
Consequently, while the volume might be up, the profit margins are significantly lower. Think of it like this: you’re pumping out more product, but you’re getting paid less for each barrel. It’s akin to a Black Friday sale that stretches the limits of what makes sense. The drive is clearly to generate quick cash, likely to support the war effort, even if it’s at a substantial economic loss. The idea of other countries being happy about this discounts are, in essence, enjoying the fallout as Russian crude oil floods the market.
This also impacts global oil dynamics, which raises the next question: will this decrease gas prices in places like the United States? The immediate effect is uncertain. While theoretically, more cheap oil on the market could push prices down, numerous factors influence gas prices, including refining capacity, distribution costs, and geopolitical tensions. Therefore, there’s no guarantee the consumer will see immediate relief at the pump. It’s a long-term play for them.
The fact that buyers are only touching Russian Urals (a specific grade of Russian crude oil) at steep discounts is actually a double-edged sword for Russia. On one hand, it indicates the sanctions are biting, and the international community is hesitant to engage with them. On the other hand, the demand, albeit at lower prices, shows there’s still a market for their product. It is a long-term economic gamble for the country involved, and the implications of this strategy are significant.
The potential scenarios for Russia’s oil future are numerous and all quite concerning. If the war continues and the infrastructure continues to take hits, their oil extraction could eventually grind to a halt because of damaged machinery and lack of maintenance. Then, the price of the oil from other countries will increase when the price goes up. Alternatively, if the war ends but sanctions remain, other oil-producing nations might strategically wait for Russia to collapse economically. Then the other countries can increase prices.
Another possibility involves the end of the war and the lifting of sanctions. In this scenario, Russia will need to invest in repairing its infrastructure, which would likely necessitate higher oil prices to recoup their expenses. Furthermore, even if Russian oil starts flowing again, other oil-producing nations might still capitalize on the situation by increasing their own prices. This is a game of patience, played out on the global stage.
The analogy to Venezuela is particularly insightful. Venezuela, despite having enormous oil reserves, mismanaged its oil sector to fund other programs and now is suffering significant economic difficulties. Russia is playing with fire, prioritizing short-term gains over sustainable practices. This is a dangerous path. The world is watching and waiting for the moment the Russian machinery breaks down. Then, they will have their chance.
There’s another crucial aspect to consider: the global shift towards green energy and electric vehicles. European nations, and other countries are aggressively reducing their dependence on Russian oil by investing in these alternatives. This reduces overall demand for oil from all sources, including Russia’s. It’s a strategic move that could further undermine Russia’s oil revenues in the long run.
Then there is the possibility of oil producers bribing politicians to sabotage green energy projects. This is a depressing but potentially realistic scenario, where powerful oil interests would try to slow down the transition to green energy, to keep demand for fossil fuels high. This is the 4.5 option and it is a battle for the world’s energy future.