Saudi Arabia Buys Russian Fuel Oil Despite Oil Wealth: A Simple Calculation

In a seemingly paradoxical move, Saudi Arabia, the world's largest oil exporter, has become a major importer of Russian fuel oil and vacuum gas oil (VGO). In July alone, Riyadh purchased approximately 1.1 million tons of these fuels from Moscow, a 18% decrease from June, according to Reuters, citing data from commodity traders and LSEG.

This strategic import decision offers a clear financial benefit to the Saudis. By using Russian fuel oil for its power sector, particularly to meet the surge in electricity demand driven by air conditioning during the hot summer months, Saudi Arabia can conserve its own crude oil for export. This substitution effectively lowers energy costs for the kingdom.

Furthermore, VGO is not a final product but a crucial feedstock for refineries. Processing Russian VGO allows Saudi refineries to produce higher-value refined products like gasoline, diesel, and jet fuel. This adds another layer of economic advantage to the imports.

The shift in Russian refined product markets is evident, with the Middle East and Asia becoming primary destinations after the European Union's embargo on Russian oil products took effect in February 2023. Russian fuel oil and VGO exports to Singapore and Malaysia, key bunkering and storage hubs, saw a 2.5-fold increase in July compared to the previous month, reaching about 470,000 tons. While India's July imports are not yet detailed, they received around 150,000 tons in June. Tankers carrying approximately 230,000 tons of Russian heavy oil products are currently in the Suez Canal, their final destinations undisclosed.