Russia: Running on Empty?

By Helima Croft
Published March 22, 2022 | 2 min read

While oil has continued to see downward pressure with market expectations of an inevitable off ramp to Russia-Ukraine conflict, we continue to warn that the conflict will likely get considerably worse. Moreover, Saudi Arabia remains the only game in town when it comes to serious OPEC surge capacity that could materially aid the White House in backfilling Russian crude exports.


The White House has continued to struggle in its campaign to secure additional oil to backfill the Russian export loses. The mixed messages from UAE’s leadership certainly caused some confusion about upcoming OPEC+ action. Last Wednesday, the powerful Ambassador to Washington and Minister of State Yousef Otaiba indicating that his country was prepared to support an increase in OPEC production to make up for Russian export losses but by day’s end the Minister of Energy Suhail Mazroui was signaling on social media that there was no looming output course correction.

Yet, UAE was always going to be something of a sideshow given that Saudi Arabia remains a clear hold out on loosening the taps and altering the OPEC+ easing arrangement. The leadership in Riyadh continues to express concerns about deploying all the additional spare barrels at this stage and eliminating the spare capacity shock absorbers. We also believe that Riyadh is continuing to looking for clear commitments about a new security partnership with Washington before it agrees to sideline the OPEC+ production agreement and partnership with Moscow. A Presidential phone call to the Saudi Crown Prince seems insufficient to meeting these challenges and we are closely watching for a potential high level White House visit to the Kingdom. Certainly, candidate Biden’s campaign rhetoric about Saudi Arabia continues to cause problems for the administration as evidenced by the tough questions that Press Secretary Psaki has been fielding from reporters this week.



Venezuela has been another recent stop on the US energy diplomacy tour. Venezuelan production has been on the upswing due to the provision of diluents from countries like Iran and China in contravention of US sanctions. A formal relaxation of punitive US measures could potentially unlock additional output.

There does seem to be a path to Venezuelan output increasing given the ongoing talks between Washington and Caracas. The release of two American prisoners would appear to be the type of confidence building measure that would help ease the way for the relaxation of some key sanctions and more barrels making their way to the United States. And yet additional volumes would seem to be relatively modest, with 600 kb/d serving as something of a high water mark by planners in Washington. It is notable that other leading Venezuela watchers contend that it will be a significantly lower near-term increase due to the magnitude of the economic dislocation and infrastructure erosion in the country.


Iran nuclear agreement

The Iranian nuclear talks seem to have stalled in the face of the new Russian demands for guarantees that the new sanctions will not impede their ability to trade with Tehran. Statements from Iranian officials have also seemingly hardened in recent days and it is not clear whether this represents a maximalist Iranian negotiating stance that is taking advantage of the current energy price dynamics or potentially reflects some degree of Russian interference as Moscow seeks to take revenge on its Western rivals.

However, even if a deal is successfully concluded, Iran would need to roll back its recent nuclear advances (i.e. halt high level uranium enrichment, disconnect and store high speed centrifuges, ship out highly enriched uranium stockpile and repurpose the Fordow facility) and the IAEA would need to verify compliance in order for the White House to again issue waivers to importers of Iranian oil. This process would likely take several months and if there were any modification to the terms of the 2015 JCPOA agreement, the new deal would have to be submitted to the US Congress for review under the terms of the 2015 Iran Nuclear Agreement Review Act. Hence, it was never going to be the case that 1 mb/d of Iranian crude would come back to the market as soon as the ink was dry on the deal, and in any event, Iran alone could not backfill the types of losses that we are now anticipating from Russia.

Helima Croft

Helima Croft
Global Head
Commodity Strategy and MENA Research

CommoditiesGasIran Nuclear AgreementOPECOilOil EmbargoRussiaUkraine CrisisUnited StatesVenezuela