Crude Oil Turns Toxic To Russia: Russia May Shut-In Oil Production

crude oil
crude oil

Russia succumbs to shutting in a few of its oil production. The Russian government can take this action since they lack the ability to sell all the volume displaced from the European markets to other potential selling regions. The Standard Charted has even predicted that the Russian crude production is expected to be falling and be consistent with the dawn fall for a minimum of the next 3 years.

In this blog, an account of the reasons for shutting in oil production by Russia is investigated in light of the Russian-Ukraine war. In addition, the decision of the United States to ban Russian oil imports has also been considered to understand its impact on this decision of Russia.

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Russia: One of the largest producers of oil around the globe

Top oil producer around the globe: Russia is standing among the three top oil producers around the globe straight after the United States and Saudi Arabia. Russia provides approximately 10% of the global supply of oil and related commodities. Europe has been relying on the nation of Russia for almost 1/3 of its total oil imports.

Russian Ukraine conflict and traders: The Russian- Ukraine conflict has affected the buyers and traders and the European refineries. The impact has been observed with a reduction in the purchase of Russian oil.

Rise in oil and gas prices: The oil and gas prices were hiked as an outcome of the post-pandemic economic recovery plan. The prices even got affected by the involvement of Russia and Ukraine with their military actions.As a result, crude oil prices are rising with a figure of more than $10 a barrel.In the last few days, Brent crude oil jumped more than $10. At more than $124 a barrel, benchmark US crude was up approximately $9.

Crude oil turning toxic for Russia: The issue of supply of Russian oil has been turning toxic as it has appeared as one of the ways of affecting and exerting pressure on the Russian government. Moreover, the hike in price and responses of the different nations put the crude oil against the Russian government.

Unites States and its ban on Russian oil imports

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Dependence of the US on Russian oil imports: the United States relied on Russia for around 3% of the oil, which is 600,000 barrels per day. The nation has been meeting 60% of the demands with domestic production, which is facing an increase with the production of the Energy Department.

The rise in average daily output expected: Energy Department has predicted that. There will be a rise in the average daily output of the oil demand in the United States. The rise will be reaching 12.6 million barrels by the end of 2023 from the figure of 12 million barrels.It will be nearly 3 million barrels above the 12.3 million barrels record, which has been set in the year 2019.

Small step of US affecting Russian crude oil: The economists have considered it as a small step. But with a potentially high impact on the economy. The prices of oil and other commodities have been reaching heights with this announcement of the United States.

Why is Russia shutting its oil productions?

The situation of Russia of shutting in oil productions can directly impact the overall economy of the nation in this time of war. These are the list of reasons which have forced Russia to the situation of shutting in oil production.

SR NO Reasons Of Shutting Oil Production Resource
1 Invasion of Russia BBC
2 Criticism And Response BBC
3 Impact On Russian Banks BBC
4 Ban Of Imports By The United States BBC
5 Direct And Indirect Impacts Of Ban BBC

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Invasion of Russia

The most prominent reason behind this prediction is the invasion of Russia in the regions of Ukraine. This war has affected the different nations’ economies and significantly impacted the global economy.

Criticism and response

This invasion has produced civil sanction responses from the entities such as European Union. The nations like the United States and the United Kingdom.

Impact on Russian banks

The military action of the Russian government has led to the avoidance of several Russian banks out of the international Swift system by the western allies. The sanctions of banks are resulting in no access to 70% of the Russian crude oil exports, which is around 3.8 million BPD.

As a result, as per the Standard Charted bank, Russian oil production is expected to plummet by as much as 1.612 million barrels per day in the year 2022 and another 217,000 barrels per day (BPD) in 2023, with the year-over-year loss hitting at 2.306 million BPD in Q2 2022.

Ban of imports by the United States 

The ban of the United States on the imports of Russian oil, coal. Other commodities has also affected the struggle of Russia in order to sell its commodities to buyers. Analysts and readers have pointed out that buyers are now avoiding the Russian crude. They are even more fiercely with this action of the United States.

Direct and indirect impacts of ban

However, indirect impacts can be higher than expected. Since several buyers and traders have been shunning the Russian crude oil. The reason for such a response from the traders. And buyers is reputational risk and self-sanctioning as an impact of the Russian Ukraine war.

 The military action of Russia against Ukraine is leading to a significant impact on the national as well as the global economy. The Western allies and the ban of the United States on Russian oil imports have further exaggerated the situation. The struggle of Russia is increasing day by day with the hike in the oil prices. It may lead to shutting in oil production.


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