Russia Loses the Battle, Oil Wins the War

Written by Luke Sweeney
Posted July 12, 2022

Right now Russia’s chief export is chaos. 

Its biggest import? Cash from desperate nations. putin laughing

Putin’s sudden ousting from the global energy market triggered a massive energy panic, forcing both Russia and its former customers into an incredibly uncomfortable position. 

In Russia’s case, the economy is showing significant damage. Sanctions have practically wiped out all other export revenue. Putin is paying his bills almost entirely with oil and gas money. 

That money is either coming from countries like Sri Lanka that don't have the luxury of switching energy providers, or from opportunists like China and India. 

In 2021, right before the invasion, Russia’s state-controlled oil giant Gazprom made a record $29 billion in profit. Until European oil sanctions take effect, that money is just going to keep rolling in. russia stats

After all, high prices and desperate customers are a textbook recipe for soaring profits. 

To prevent that money from funding Russia’s war machine,the G-7 is planning the first retaliation with some actual political teeth. It’s a direct shot at Putin’s last source of revenue. 

Under the new agreement, Russian oil will be capped somewhere around $40–$60 — approximately half the current price. 

Any tankers found in violation will face immediate revocation of their insurance. Since most shipping lanes forbid uninsured travel, that would be a death sentence. No respectable company would take such a hefty risk. 

At least, that’s what the G-7 is banking on… 

I’m Not Saying It’s Impossible, But…

Let’s be realistic. If the Russian debacle has taught us anything, it’s that energy is just as critical as water, food, and medicine. 

If a nation is threatened with a shortage, morality and politics take a back seat. Providing citizens with critical necessities is the ultimate priority. 

That’s why Russia will always have customers. A huge portion of the population is not capable of completely reorganizing their energy infrastructure at a moment's notice. 

Yes, against better judgment, the world admittedly got hooked on dirt-cheap Russian oil and gas. But it most likely wasn't a decision that was made lightly. 

Take Sri Lanka, for example. Protesters just successfully overthrew the government after years of mismanagement, but now they're facing the same financial trouble. It turns out running a country is harder than it looks. 

sri lanka oc

In his final weeks as president, Gotabaya Rajapaksa purchased 90,000 metric tons of Russian crude to restart Sri Lanka’s single refinery. When that runs out, the new leadership will most likely buy more. 

After all, what else are they supposed to do? The country needs fuel. And potential sellers are limited considering Sri Lanka’s skyrocketing debt of $51 billion and counting. 

From up on its high horse, the G-7 sounds like a wealthy suburbanite advising inner-city residents to “just buy a better house.”

And thanks to COVID, the impending recession, high inflation, wage stagnation, and too many other variables to even mention, Sri Lanka isn't the only country in a difficult financial position. 

Meanwhile, China and India are taking advantage of the diminished demand for Putin’s oil. The two countries are responsible for the vast majority of Russia’s income right now — most of which Putin is currently dropping on Ukrainian shopping malls.

So after all that, the world’s boycott hasn't even put a dent in Russian oil profits. Gazprom is still on target to make billions in profit during 2022. 

If the G-7 is planning something drastic, now might be the time. 

Reality Has Officially Set In

Whatever the world’s leaders decide to do, Russian oil has still disappeared from most of the world. That hasn't gone unnoticed, particularly in the U.S. 

Global supply took a significant hit. Supply became balanced with demand in the second quarter of 2022 at 98.3 million bpd. Analysts weren't expecting this to happen until at least the fourth quarteroil article oc

We also saw back in March, as the invasion was just picking up steam, that the combined output of OPEC+ was 1.5 million bpd below target, the lowest undershot since 2020. Naturally, oil prices continued to rise. 

For consumers, that unfortunately means higher prices on just about everything petroleum-related. But for U.S. oil companies, it means an ongoing bull run of epic proportions. 

Skyrocketing prices means Big Oil has made windfall profits so far in 2022. It even forced our climate-friendly president to abandon his principles and sell out the Gulf of Mexico for offshore oil drilling. 

You know, the same drilling he recently blasted for making Exxon “more money than God.”

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All the nations that signed ambitious green energy commitments in the past few years are getting a major dose of reality. 

The world can't ignore it anymore: This is the summer of oil. 

If you're interested in getting a cut of Exxon's or BP’s ungodly profits, read more about the industry here. There are a few things every investor obviously should avoid when diving into the oil and gas sector.

Keith Kohl, our senior editor over at Energy Investor, breaks down exactly where and when to invest in this year's most lucrative market. His free presentation was just released. Make sure you follow his advice to the letter.

To your wealth,

Luke Sweeney
Contributor, Outsider Club

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