Saudi Arabia and Iraq come to the aid of European oil refiners during the war in Ukraine

Saudi Arabia and Iraq are increasingly diverting their crude oil to Europe, helping the continent’s oil refineries weather a pivot away from Russia.

More than a million barrels of crude a day were sent to Europe from the Middle East in the first three weeks of July via a pipeline that passes through Egypt, according to ship tracking data compiled by Bloomberg. . Volumes have roughly doubled over the past year.

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Russia’s invasion of Ukraine sparked a backlash among European companies, with many choosing to stop doing business with Moscow. The so-called self-sanction nevertheless created a question of where they would find alternative supplies.

Channeled flows are dominated by shipments from Saudi Arabia, but Iraq is also ramping up deliveries. Companies can either deliver in a pipeline called SuMed that runs through Egypt or, if their ships are small enough, go directly through the Suez Canal into the Red Sea. Iraqi cargoes do the latter.

Volumes shipped fell from about 800,000 barrels per day a month earlier to the highest level since a brief surge during free-for-all production in April 2020.

In addition to these flows, about 1.2 million barrels per day were shipped into the channel from the Persian Gulf in the first three weeks of July, mostly from Iraq.

That could bring total flows from the Middle East to Europe to 2.2 million barrels a day, up nearly 90% since January, the last full month before the war began.

The shift comes as growing volumes of Russian crude head in the opposite direction, from its Baltic and Black Sea ports to buyers in India and China. This gives the two Asian countries plenty of cheap barrels at a time when fuel prices have soared.

“We are now seeing some of these barrels being rerouted from Asia to Europe,” Giovanni Staunovo, commodities analyst at UBS Group AG, said of Middle East crude. This comes “with Europe reducing its purchases of Russian barrels and Russia instead sending its oil to a key Middle Eastern market, Asia.”

It is less certain that flows from the Middle East to Europe will be sustainable. At the end of this year, a European Union embargo on Russian crude is expected to come into effect.

Part of the sanctions package includes a ban on insuring shipments of Russian supplies to any buyer.

If the insurance ban hits all exports – which the US Treasury fears – then it could again intensify competition for supplies from the Middle East.

Saudi oil tanker Bahri this week chartered a supertanker to transport crude from the Mediterranean to Rotterdam, a rare charter for the Kingdom’s oil company that underscores the change in flow.

The adjustment in barrel circulation is also a reminder of the logistical challenges that could arise as buyers wean off Russian crude.

Shipments have to travel longer distances, which boosts employment of the global tanker fleet.

Benchmark profits for supertankers capable of carrying 2 million barrels of crude oil hit their highest level since April this week, although they are still relatively weak by historical standards.

Europe’s appetite for Middle Eastern crude is increasing what’s known as ton-miles, a measure of demand that multiplies the amount of freight by the distance it’s being shipped, according to Lars Barstad, Managing Director of Frontline Management AS.

“Tonne-miles imported into the EU have at least doubled,” said Barstad, who heads the management company for one of the world’s largest tanker owners. “Russian oil ton-miles have tripled, if not more.”

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