Russia would have to slash oil production by 20% within a year or two after an EU embargo, even if China ramps up buying, says top oil analyst: 'It's really a worst-case scenario'

• Russia could slash oil production by 20% within "a year or two" after an EU oil embargo, a top oil analyst told Insider.
• Moscow has already been exploring different oil markets in Asia, and has also sent cargoes to South Africa for storage.

The European Union is making progress toward a Russian oil embargo, which would force Moscow to significantly decrease its oil production in the near future, according to Matt Smith, lead oil analyst at Kpler.

From about 10 million barrels a day currently, Russia's oil output could tumble by 20% "in a year or two" after removing EU imports, he told Insider. That's much faster than forecasted in a new report by Rystad Energy, which said the same decline will happen by 2030.

"As [European] dependency drops, it's difficult to see a scenario where Russian production does not drop significantly," Smith said.

To be sure, Moscow has already been exploring alternative markets to Europe and has been exporting more oil to Asia, especially to India. There's also been an uptick in cargoes heading to storage facilities in South Africa, he noted.

China is also seen as a key market for Russia, but the renewal of strict COVID-19 lockdowns have curbed oil demand.

"China is the big hope for Russia, but it's still difficult to imagine a scenario where China would be absorbing the entire drop off from an EU embargo," Smith added.

And once Russia cuts output, it could have significant, long-term repercussions on its ability to produce oil in the future. Extreme climates in oil-making regions like Siberia could damage oil reservoirs and fields if they go dormant for extended periods.

"Cutting production, it's really a worst-case scenario, because of the uncertainty of the potential damage it could cause," Smith said.