What are the risks of reducing Russian coal supply to the EU?

Uncertainty over Russian commodities supplies, resulting from fears of sanctions on coal, oil and gas exports to Europe, which emerged after Russia launched its military operation in Ukraine, led to a sharp spike in API2 index in March 2022 to historic highs above 400 USD/t amid soaring gas prices above 2,500 USD/1,000 m3 and rising electricity costs.

After it became clear that the European Union is not planning to ban imports of Russian energy resources in the near term, the risk of supply disruption decreased, causing the correction of coal prices below 300 USD/t. Further price trends depend on the progress in the outcomes of the agreements to be reached as part of the ongoing negotiations between Russia and Ukraine.

The share of revenues to the Russian budget from coal exports to European countries is insignificant. Coal supplies to Europe account for about 50 mio t out of total exports of 230 mio t in 2021, while deliveries to Asia-Pacific represent half of Russian coal exports. The key consumer of Russian material in the East is China, which lifted imports from Russia to 57 mio t in 2021. Total Russian coal exports revenues accounted for about 18 billion USD in total export gains of 492 billion USD.

In case of a possible EU’s refusal to import Russian coal, export flows are likely to be reoriented towards Asian markets. Attempts to isolate Russia from trade with Western countries will not create any fundamentally new trend in Euro-Asian logistics, but will only accelerate what has already been happening in recent years: an increasing share of Asian countries in foreign trade turnover, the growing role of the Far Eastern and Southern sea basins and Arctic transportation, as well as the growing demand for Russian railway infrastructure, especially towards the Far East.

The reorientation of export flows has been taking shape over the years, due to current economic trends that include the rapid growth of the economies of a number of high-population countries, primarily China and India, regardless of the geopolitical situation in the world.

Leave a Reply