Poland says it has still not dropped oil import from Russia, because the sanctions on the northern section of the Druzhba oil pipe have not been introduced. The country was the Kremlin’s largest oil customer, despite the Prime Minister’s promise to abandon this direction at the end of 2022. However, it is still possible to implement this plan with a delay – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.
BiznesAlert.pl reported that Poland imported less than 500,000 tons of oil from Russia in January 2023. This has been brought in as part of a contract with Russia’s Transeft to buy 3 million tons of oil in 2023. The Orlen-Rosneft deal provided for deliveries of 3.6 million tons per year (an average of 300 thousand tons per month) and was valid for two years from February 1, 2021 to January 31, 2023. It is worth adding that Orlen is still implementing the agreement with Tatneft valid until December 2024 for about 200 thousand tons per month. Combined deliveries from Rosneft and Tatneft totalled at almost half a million tons in January. This is the highest volume among Russian customers in the past month.
Meanwhile, the share of Russian oil in Orlen’s portfolio fell from 83 percent in 2021, to about 60 percent in 2022, to 10 percent in February 2023, when only the Tatneft deal remained. It is worth mentioning that although Germans did not import oil from Russia in January, they, like the Poles, have reserved the capacity of the Druzhba Oil Pipeline, but want to use it for supplies from Kazakhstan. They also rely on non-Russian oil supplies through a naftoport. These routes still have not changed, due the gridlock around the Schwedt refinery, which I wrote about elsewhere on BiznesAlert.pl. After the deadlock is resolved and if the sanctions on the northern section of the Druzhba, which stretches to Poland and Germany, are imposed, it will be possible to drop the contract with Rosneft without legal penalties for Orlen.
BiznesAlert.pl sources in Berlin and Warsaw, argue that an agreement on this issue was still possible. So far, however, the declaration of the Prime Minister of the Republic of Poland from March 2022 has not been implemented. Russian oil supplies to Poland and other European countries must be stopped as soon as possible. It is worth recalling that the Czech Republic, Slovakia and Hungary, supplied with the southern thread, blocked the EU embargo on the entire Druzhba pipe and intend to abandon Russian oil only in 2024, if at all. Thus, they gain a competitive advantage in Central and Eastern Europe, and receive part of the oil through Orlen, including via the Kralupy refinery in the Czech Republic. This is one of the economic arguments that convince the managers of Orlen to maintain the agreement with Rosneft to balance the differences in the market with the help of specific compensations, which the Climate Ministry spoke about in a comment for BiznesAlert.pl. But there is an economic counter-argument. The Russians themselves can turn the tap off when their regulation to stop deliveries to countries that apply the maximum price of the G7, the European Union and Australia, comes into force. Poland will apply it, and even successfully argued for the price to be revised every two months, so that it stays at least 5 percent below the market value of the Urals blend. The Russians intend to implement the new rules from March on, so February may be the last month of deliveries from Russia before the Kremlin turns the tap off.
In January 2023 Russia’s revenues from hydrocarbon sales fell by 46 percent compared to this month a year ago, and budget spending on the war increased by 59 percent. The deficit is USD 25 billion, the highest since 1998. This is official data from the Ministry of Finance of Russia. The decline in revenues from the sale of hydrocarbons is due to, among other things, Western sanctions for Russia’s invasion of Ukraine. These include a full embargo on supplies to the United States, Canada and the United Kingdom, and a maritime embargo in the European Union on the supply of oil and petroleum products. The sanctions have forced Russia to sell the Urals blend at a discount to Asia. Poland and Germany, as Europe’s top Russian buyers, could amplify this effect by condemning the Kremlin to eating its tail by plugging the budget hole with petrodollar reserves.