Meeting on the Situation in Global Oil and Gas Markets

Vladimir Putin: Good afternoon, colleagues.

I asked you to gather today to discuss the situation taking shape on global energy markets — to compare notes, so to speak. I would like to hear your views on recent developments and to consult with you on how we should coordinate the efforts of the state and our private companies in light of what is happening. In that connection, we will also discuss Russia's further course of action in global energy more broadly, including in light of what we understand to be a worsening situation in the Middle East.

Russia has warned on multiple occasions — I want to make this clear from the outset — that attempts to destabilize the situation in the Middle East would inevitably put the global fuel and energy sector at risk, drive up oil and gas prices, restrict supplies of these resources worldwide, and unquestionably disrupt long-term investment plans. It appears that is precisely what is now happening.

Today we are seeing logistical problems on hydrocarbon transportation routes, and we can see that this is having a deeply negative effect on global production chains — hitting industry and, without any exaggeration, the entire system of international economic relations. Because disruptions to supply chains bring other problems in their wake — purely economic ones: inflation rises, and production suffers, not only in oil and gas but in manufactured goods as well.

Let me recall that last year roughly one-third of the world's seaborne oil exports passed through the Strait of Hormuz — approximately 14 million barrels per day. Of that volume, around 80 percent was bound for countries in the Asia-Pacific region. That route is now effectively closed. Oil production tied to use of the strait risks coming to a complete halt within the next month. Output has already begun to decline, and storage facilities in the region are filling up with oil that cannot be exported — or can only be exported with great difficulty and at very high cost.

It is clear that a complete switch of Middle Eastern oil deliveries away from the Strait of Hormuz is, at least for now, not feasible. Restructuring logistics will not only take a long time but will require substantial infrastructure expenditures — expanding marine terminals and so on — and will of course entail significant political risks that have not gone away.

Yet consumers need oil right now. As a result, global oil prices are rising — we can see that very clearly. In the past week alone they have gained more than 30 percent. When I checked this morning at around 5:30 a.m. Moscow time, the price had broken through 119 — it was above 119 dollars per barrel. Then it came back to 107, 106, and now, I believe, Igor Ivanovich [Sechin] was saying 103 — somewhere around that level at the moment. But fluctuations continue, and the trend is upward, not downward.

A similar situation is developing on the global gas market. Liquefied natural gas (LNG) supplies from the Middle East have dropped sharply. Production capacity in the region has declined, and restoring it will take weeks, if not months. It is impossible to compensate quickly for the lost volumes. Consequently, global gas prices are also rising — at an even faster pace than oil prices, it seems.

I would like to emphasize the following in this regard. In the current environment, competition among buyers for energy suppliers — for stable, predictable oil and gas deliveries — is intensifying.

In this connection, I cannot help but note — and I say this not only to colleagues in this room but to all our consumers more broadly — that it is precisely stability that has always distinguished Russian energy companies.

It is clear that the global logistics of the fuel and energy sector [the broader complex of fuel production, processing, and supply infrastructure] will shift, under conditions of an ongoing Middle East conflict, in favor of more advantageous and more promising markets. At the same time, we must understand that the current high commodity prices are, of course, temporary. We all know this; it is self-evident, and we must proceed accordingly. That is why I asked you to gather — to consult with you on how we should coordinate our efforts in the near term.

A rebalancing of hydrocarbon supply and demand will, inevitably, give rise to a new, stable pricing reality. This will happen without fail, and it is therefore important for Russian energy companies to use the current moment — including to direct additional export revenues toward reducing their debt burden and paying down liabilities to domestic banks. Colleagues, I want to draw your particular attention to this point. I ask the Government and the Central Bank of Russia (CBR) to take this process under oversight.

I want to emphasize once again: Russia is a reliable energy supplier. That has always been the case. We will, of course, continue to supply oil and gas to countries that are themselves reliable counterparties — and I have in mind not only our partners in the Asia-Pacific region, but also states in Eastern Europe, such as Slovakia and Hungary. Even now, some colleagues briefed me before this broader meeting that we are already increasing deliveries to our reliable partners in several regions of the world simultaneously.

At the same time, I want to recall that European Union countries plan to introduce, from 25 April, additional restrictions on purchases of Russian hydrocarbons — including LNG — up to and including a complete ban on such deliveries by 2027. In this regard, the Government has already been tasked with assessing the feasibility and advisability of halting our energy exports to the European market — of not waiting for the door to be demonstratively slammed in our faces, but of acting now to redirect those volumes away from the European market toward more attractive destinations and, most importantly, to secure a lasting foothold there.

The current market conditions are such that if we redirect our supplies right now to markets that need increased deliveries, we can establish ourselves there while the opportunity exists — that is, in markets where there is sustained long-term demand and reliable long-term relationships, in countries that are building constructive business ties with Russia.

I would add — and this is precisely why I asked you here to consult on all of these matters — that if European companies and European buyers were to decide to reorient themselves and offer us stable, long-term cooperation free from political considerations, then by all means: we have never refused, and we are prepared to work with Europeans as well. But we need some signal from them that they are ready and willing to work with us and can guarantee that stability and predictability.

The Government is keeping these matters under oversight as well. I hope that today we will have a substantive discussion of all of these issues.

The floor goes to Alexander Novak [Deputy Prime Minister of the Russian Federation with responsibility for the energy sector]. Please go ahead.

<…>