By Olga Yagova

MOSCOW (Reuters) – Saudi Arabia’s planned purchase of Polish refining assets is set to put OPEC’s top producer in charge of two thirds of Poland’s oil supply, eroding previously dominant supplier Russia’s leverage as it grapples with regional tension.

Poland’s long tradition of trying to lower its dependence on Russian energy imports has led it to seek out deals with alternate suppliers. As relations worsened, its resolve has grown.

Moscow and Warsaw have been at odds over Nord Stream 2’s gas pipeline, which bypasses Ukraine.

The tension between Russia and Poland was already deteriorating over oil supply issues in early 2021. Poland had to reduce its oil purchases from Russia as a result of a price dispute between Rosneft, Russia, and PKN.

Saudi Arabia’s state-owned oil firm, Saudi Aramco, announced last Wednesday that it would buy a 30 percent stake in Poland’s second largest refinery. This will allow the company to supply more oil to state energy giant PKN Orlen at 200,000-337,000. barrels per day (bpd).

Gdansk’s oil refinery has a capacity of 210,000 barrels per day, which is second in Poland after state-owned oil refinery Plock with approximately 270,000 barrels/day.

“We are proud of our relationships with Russian suppliers and partners,” PKN Orlen stated in an emailed response to Reuters queries.

While it stated that it didn’t intend to “stop business with Russian partners”, the company refused to reveal details about its trade agreements.

As a reply to an email asking for comments, Saudi Aramco (SE:) stated that it could not provide additional details about the deal.

Reuters reached out to Russia’s Energy Ministry and Russia’s Transneft, Rosneft pipeline monopoly but they did not respond.

ECONOMICS VS POLITICS

Poland is one of the most significant oil consumers in Baltics and its PKN Orlen holds stakes in refineries in Lithuania and the Czech Republic, which are also buyers of Russia’s flagship Urals crude.

Aramco, if the deal is approved, will boost its oil supply to Poland between 3 and 5 times. It may also meet 50% to 70% of Poland’s crude-oil needs.

Technically, medium sour Saudi crude can be used by Polish refineries that are equipped to deal with Russian Urals. However, the logistics involved in shipping to the region may increase costs compared to importing Russian Baltic cargoes. Viktor Katona, an independent consultant JBC Energy, told Reuters.

Katona explained that Poland is seeking independence from Russian resources primarily because of its political motivations. He also said any reduction in spot buying and market outlets would be detrimental to Russian oil exporters.

Katona stated that Saudi Arabia supplies Poland with approximately 90,000. bpd seaborne crude oil to Gdansk. This compares to the 142,000 bpd Russian Urals sent via the same route.

Poland’s seaborne exports have increased as Poland imports more North Sea and West African oils. This is a result of the technical and political problems that have been faced in recent years.

Two industry sources and Eikon data indicate that Russia expects Russia to provide 120,000 barrels of oil per month via Druzhba, compared with 220,000 bpd in Jan 2021.

This compares to up to 500,000 BPD in the middle 2000s.

Two people close to the Saudi deal claimed that the agreement was significant to Poland. But it is not likely to affect internal politics of the OPEC+ Group, which includes the Organization of the Petroleum Exporting Countries and major producers such as Russia.

Although they agree on the necessity to sustain prices by implementing output agreements, Russia, Saudi Arabia and other countries are used to competing in market shares. This could be a learning opportunity for the West regarding the pragmatic management of rival relationships, according to one source.

A source familiar with the matter said that anyone can invest in any country. The source cited Rosneft’s 2017 investment in India’s Essar, in which Aramco had also been interested.