Time to buy oil from Russia?

10 August 2022
Biden and Putin

US President Joe Biden and Russia President Vladimir Putin participate in a tete-a-tete during a U.S.-Russia Summit on Wednesday, June 16, 2021, at the Villa La Grange in Geneva. / Official White House Photo by Adam Schultz)

Over the past week, Trade and Industry minister Ebrahim Patel dropped “dumping” duties on imported chicken.

It’s a good decision, reversing a disastrous policy put in place by Patel’s predecessor Rob Davies in 2013.

I said at the time that lower-income groups would pay the price in the form of increased food costs. I was correct.

I also said at the time that protecting South Africa’s access to US markets via the Africa Growth and Opportunity Act (Agoa) should have high priority. I’m now reconsidering that view. Let’s do a bit of a gedankenexperiment to see whether I’m on track.

  1. South Africa’s exports (2020 est.) were worth about US $93.01 billion .
  2. Our export partners (in order) are China 15%, United Kingdom 8%, Germany 7%, United States 6%, India 6%
  3. That would value our exports to the US at around US $5 billion.
  4. In the absence of Agoa, duty rates would range from 0 to 37,5 percent , with a typical duty rate about 5,63 percent. For our purposes, I’m going to assume a duty rate of 10 percent applying.
  5. Paying 10% duty to the US would lead to a US $500 million negative impact on our country’s exporters.
  6. Our refined petroleum consumption is around 622,500 bbl/day (2019 est.) At today’s Brent Crude price of US $96.04, that would place our daily expenditure on oil at around US $59 million per day or $21,5 billion per year.
  7. If we buy oil from Russia (as India and China do), we would pay significantly less for oil — at a discount of up to US $19/bbl . That would drop the cost to South Africa’s economy to US $47,9 million per day or $17,4 billion per year — a saving of US $4,1 billion per year.

These are very rudimentary calculations, but are good enough for our purposes. What they tell us is that if we ignore US threats and buy oil from Russia, we save more than $4 billion per year. If the US tries to punish us by excluding us from Agoa, the impact is around US $500 million per year.

Of course, there are other considerations — if the US sanctions South Africa for buying oil from Russia, things become more complicated.

I’m of the view that the US will not sanction us because they have not done so with China and India. The US is also dependent on us for a range of other resources that would otherwise be only available from Russia. (Uranium comes to mind immediately. We also produce 72% of the world’s platinum and 83% of the world’s rhodium.)

I’m very clear that the biggest threat to our economic growth is our skyrocketing energy costs. If buying oil from Russia is going to lower that cost by 20 percent, we need to think about that option very seriously.

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