Bp15 Sep 2022 16:31
Community
The G7-led idea of putting a price cap on Russian oil may look brilliant in theory, but it would likely be very messy in practice, potentially sending oil prices soaring. Surging oil prices are exactly what the price cap is meant to avoid, as it aims to keep Russian oil flowing but at a lower price.
For weeks now, the G7 has been discussing exempting Russian oil from the maritime insurance and financing ban only if that oil is sold at or below a certain price that the group has yet to agree to.
This would require a lot of coordination with EU, UK, and U.S.-based providers of maritime insurance and financing. But it would be the easiest part of implementing the price cap. Russia could intensify its already ongoing efforts to have non-Western tankers and insurers agree to ship Russian oil and products. Or Putin can simply make good on his promise to halt all energy supply - including crude, fuels, natural gas, and coal - to the countries that sign up to cap the price of Russian oil.
In any case, oil prices will likely go much higher as the EU embargo on Russian oil - which excludes oil sold at or below the price cap - enters into force at the end of this year.
Russia will continue selling its oil to Asian buyers such as India and China using non-Western fleets of tankers and maritime services while choking supply to the West. Russia is also expected to increase its covert oil exports, taking a leaf out of Iran's playbook of below-the-radar exports by switching off transponders and/or hiding the origin of the oil, analysts say.
Still, the non-Western fleet of tankers that Russia can rely on is not enough, Energy Intelligence's John van Schaik and Emily Meredith write.
If Russia refuses to use any maritime services associated with G7 countries, "Russian oil will have to sail on non-Western tankers - and there aren't enough vessels to handle Russia's millions of barrels," they argue.
"The result: less oil, higher prices, and less pain for Russia."
According to Energy Intelligence, Russian oil going to Asia from Russia's Far East is already shipped there on Russian or Asian tankers. But Russia is estimated to be exporting 4.45 million barrels per day (bpd) from its ports in the Arctic, the Baltic Sea, and the Black Sea - and this is done mostly on EU-linked vessels. Finding tankers and insurance coverage not linked to the EU, the G7, or other countries that may join the price cap mechanism for that amount of oil could be next to impossible.
The G7 reiterated in early September that they would finalize and implement "a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally – the provision of such services would only be allowed if the oil and petroleum products are purchased at or below a price ('the price cap') determined by the broad coalition of countries adhering to and implementing the price cap."
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