The price of Russian ESPO oil, supplied through the Eastern Siberia-Pacific Ocean pipeline to China and from ports in the Far East to all countries in the Asia-Pacific region (APR), exceeded $70 a barrel. The share of tankers carrying Russian oil complying with the price ceiling was 55%, and that of oil products – 70%.
In fact, it is a fact of life that all the measures taken by the EU and the G-7 regarding our oil exports, at best, only half work. Moreover, their influence on the oil market is not increasing, but decreasing. If earlier the price of Russian oil, close to $50 per barrel, was a bad sign for the West, now its price, which is close to the limit of the price cap, is called a good sign.
At the same time, the United States and the EU continue to control a good half of the world oil market and humility should not be expected at all from them. Earlier there was talk of a possible reduction in the ceiling price of Russian oil to $40-30 per barrel, but in the current situation such a step will only look like a proof of the impotence of the West. Therefore, they will fight for compliance with the already existing ceiling (ceiling price) of $60 per barrel. First, through secondary sanctions acting on buyers of Russian oil from third countries.
According to Andrey Maslov, analyst at FG Finam, new restrictive measures from the EU or the G7 are not yet considered, and a modification of the ceiling price of Russian oil is not under discussion. In general, the potential for sanctions has probably reached its limit and further tightening is unlikely.
The focus of the sanctions policy will be shifted from specific cap levels to measures to combat its circumvention (reinforcement of control / secondary sanctions, etc.), believes Dmitry Skryabin, portfolio manager at Alfa Capital. How effective they will be – the question is in the details and practice of law enforcement, it is too early to talk about this, the expert clarifies.
According to Anna Krysina, deputy head of the financial advisory practice at Delovoi Profile Group, many people now fear the imposition of secondary sanctions that could further complicate the export of Russian oil. The risks of secondary sanctions are particularly high for Kazakhstan, but by imposing them, Europe could lose access not only to Russian oil, but also to Kazakh oil. About 80% of Kazakhstan’s oil exports pass through Russia via a pipeline operated by the Caspian Pipeline Consortium, and another 16% travel west via the Transneft pipeline network.
By contrast, India, which increased its imports of our oil to record highs in 2022, has already felt the “American discontent”. Gatik Ship Management, which has become a major transporter of oil from Russia, lost international insurance due to a violation of the price cap mechanism, Bloomberg reported. Indian banks and oil refineries also had problems.
But these are all local pleasures. Russia’s oil exports continue at rising prices and, most likely, the US and the EU are unable to seriously prevent this. As Maslov notes, Russia continues to supply oil to India and China, increasing exports, which is inconsistent with the statement of cutting production by 500,000 barrels per day. Therefore, there are no prerequisites for lowering the price ceiling now, but its increase is possible if it is proven that Russia really does not reduce the extraction of black gold, he believes .
Average Russian oil prices from the Urals in December 2022 after the introduction of the EU oil embargo and the “ceiling price” fell to $ 35 per barrel, almost double the price of Brent oil, reminds Krysina. But prices could remain at a low level as long as the reserves built up during the waiting period for sanctions were used, and already in February the discount was reduced to 24-26 dollars per barrel (or around 30% for Brent) . At the same time, the amount of the discount in each specific case is determined by the terms of the contract between the buyer and the seller, therefore, to a greater extent, the discount depends on the distance of oil delivery. If in European ports Russian oil is currently quoted at a discount of 25-27 dollars per barrel, then oil from the Urals is delivered to China at a discount of 10-11 dollars per barrel. In July-August 2023, when there is a shortage of supply in the market, Russian oil will trade at prices well above the ceiling, and the discount will not exceed $10-15 per barrel.
In other words, the prices of our oil will rise regardless of the level of the cap, and the United States and the EU will have to move from fighting for the low cost of our raw materials to fighting against its export. The task is much more difficult. In addition, its successful implementation will result in a serious rise in the prices of energy resources on the world market, which Western countries are now trying to prevent by all means.
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