In Geopolitics Today - Monday, April 25th

The Impacts of a Total EU Ban on Russian Oil, World Military Expenditure at Record Highs, Indonesia Bans Palm Oil Exports

The Impacts of a Total EU Ban on Russian Oil

The European Union has remained reluctant to ban Russian oil imports given the bloc’s dependency on buying Russian oil. However, more recently, European officials have indicated they are drafting plans to phase out imports of oil and petroleum product from Russia. In the event that the EU does decide to shun Russian oil and petroleum products going forward, the most likely course of action would involve a gradual phasing out of these imports in multiple stages while existing contracts are allowed to expire. For Russia, such a ban would require a dramatic restructuring of its energy export supply chains.

A small part of Russia’s oil production comes from the eastern part of the country, making the task of diverting supply flows in the event of an EU-wide ban a difficult endeavour. In such a scenario where Russian oil exports supplied to Europe become politically untenable, Russia may look to Asia as a viable alternative market for its energy. However, the eastern Siberian fields are connected only through the East Siberian Pacific Ocean (ESPO) pipeline to the export port of Kozmino as oil is delivered to South Korea, Japan, and China. The capacity of this pipeline is limited so it is unclear whether supplies to Asian customers can be increased in the near to medium term. While not practicable at this point, Russia may seek to boost oil production from its eastern fields while also attempting to transfer as much from its western fields via ESPO.

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World Military Expenditure at Record Highs

A study conducted by the Stockholm International Peace Research Institute (SIPRI) suggests that global military expenditure reached an all-time high in 2021. According to the report, defence spending across the globe increased for the seventh consecutive year, with the United States, China, India, the United Kingdom and Russia as the top five defence spenders. Together these states account for 62 percent of the world’s entire expenditure on military weapons.

The US far outspent any other nation with $801 billion in defence spending, particularly focusing on research and development as arms procurement was lower than previous years. China was the world’s second largest military spender with an estimated $293 billion going to its military in 2021, marking the 27th straight year of increased spending. India was the third largest spender last year at $76.6 billion, gradually rising up the ranks over the last decade as its economy has seen significant growth. The UK was the fourth largest spender with an estimated $68.4bn going toward defence spending, an increase of three percent over the previous year. In fifth place was Russia, which saw its defence spending grow by 2.9 percent from the previous year to $65.9 billion. Despite the economic damage caused by the outbreak of COVID, countries nonetheless increased their arsenals as 2021 saw global military spending rose for the seventh consecutive time to reach $2.1 trillion.

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Indonesia Bans Palm Oil Exports

The Indonesian government has announced a ban on the export of palm oil products in an attempt to reduce the soaring price of cooking oil in domestic markets. The announcement followed a protest in Jakarta where locals expressed concerns over rising oil and food prices. Indonesia’s Finance Minister, Sri Mulyani Indrawati, has said that Jakarta is aware of the potential damage to other countries the ban will cause, but emphasized that it was a necessary measure to suppress domestic prices of cooking oil are.

Palm oil is the most traded edible oil in the world, used in cooking oils, processed foods, cosmetics, cleaning products, biofuels and other products. China and India are among the largest importers of Indonesian palm oil, which is the world’s largest producer of the oil accounting for more than half of the world's entire supply. The ban has unnerved other countries reliant on Indonesian exports of the commodity, and this situation is made worse by the ongoing war between Russia and Ukraine, two of the largest sunflower oil producers. To allay international fears of shortages, Indonesia has said that crude palm oil shipments would be excluded from the planned palm oil export ban, however the export ban would include refined, bleached and deodorized palm oil. These make up the the majority of Indonesia's palm oil exports, which means that processed oils — which make up the majority of Indonesian palm oil exports — will be affected by the ban coming into force on the 28th of April.

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