On Monday, a significant shift in the global oil market was observed as Vladimir Putin-led Russia is poised to surpass Saudi Arabia as the leading oil supplier to China, the world’s largest energy consumer.
What Happened: Since the start of the war, Saudi Arabia has been gradually losing its market share in China due to Russia selling its oil at steep discounts, The Wall Street Journal reports.
Despite a production cut from Saudi Arabia earlier this month, prices did not increase as expected.
The recent chaos in Russia, including the Wagner paramilitary group’s insurrection, has so far had little impact on the country’s energy sector. However, analysts are closely monitoring the situation due to its potential to disrupt the delicate alliance between Russia and the Saudi-led Organization of the Petroleum Exporting Countries.
According to commodity-data provider Kpler, Russia’s shipments now account for 14% of Chinese supplies, up from 8.8% before the war. In contrast, Saudi Arabia’s share fell to 14.5% in the three months to May.
The shift has been even more dramatic in India, where Saudi Arabia’s market share has dropped from 20% to 13%, while Russia now accounts for about 40% of India’s imports, up from 3% before the war. This shift in the oil market dynamics is also reflected in Russia’s record high oil exports to Xi Jinping-led China in May.
See Also: Russian Forces Choke On Their Own Banned Gas As Wind Plays Spoilsport On Ukraine Battlefield
Why It Matters: The sales of oil to Asia are earning Russia billions in hard currency it needs to finance its war. Meanwhile, China is increasingly hoarding cheap Russian oil as insurance in case the economy kicks into gear and prices increase.
"Cutting production is easy but you are giving up market share to other countries like Russia," Ole Hansen, head of commodity strategy at Denmark's Saxo Bank, told WSJ. "It's not easy to wrestle back your market."
Some OPEC delegates have argued that the Federal Reserve has more power over the oil-futures markets than the Saudi-led bloc. The Fed's rate increases have strengthened the dollar, making commodities denominated in the U.S. currency more expensive for holders of other currencies and weighing on prices.
Furthermore, amidst the ongoing Ukraine war, Russia and China have reportedly been in advanced secret discussions to restore Iran’s supply of a key chemical compound utilized to drive ballistic missiles.
This development, along with China’s recent declaration of the Wagner Group’s rebellion as an "internal affair" and its support for the Kremlin's efforts to maintain national stability, further underscores the strengthening ties between Russia and China.
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