The G7 decided to impose new sanctions against Russian oil. We are talking about setting the maximum price at which it is allowed to buy Russian fuel. But the main goal of the West is to force the Asian countries to follow their plan. Russia has already warned how it will respond to this move. Who will be the most affected in the end?
The finance ministers of the G7 countries have announced a decision to set ceiling prices for Russian oil. It is prohibited to transport by sea and insure companies that transport Russian oil at a price higher than the introduced ceiling. What the price ceiling will be remains to be decided. But in general, it can be revised if necessary, according to a statement by the ministers of the G7 countries, which include the United States, Great Britain, Germany, Italy, Canada, France and Japan (all these countries have already decided to abandon oil from Russia and set a deadline for refusal) .
The G7 finance ministers called on all countries to join the cap and contribute to the development of the price ceiling. They want to “create a broad coalition” in the world so that Russian oil and oil products are sold “only at prices at or below the ceiling,” Interfax reports.
Curiously, these new sanctions, according to the FT, will be introduced simultaneously with the EU’s own embargo on Russian oil imports (December 5, 2022 for crude oil and February 5, 2023 for petroleum products).
“This is a strange coincidence. Perhaps we will see a surprise in the form of a replacement of the oil embargo with a price ceiling. Such a scenario cannot be ruled out, especially if we remember how the idea of introducing a price ceiling came about,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund. He recalls that, in fact, it was initiated by US Treasury Secretary Janet Yellen. She once said that sanctions against Russia lead to a decrease in Russian oil exports to the world market, and this is harmful, as it exacerbates the shortage of oil and prices go up. It is necessary to make sure that Russia can saturate the world market with oil and prices go down.
“After this statement, Yellen faced criticism that this will allow Russia to earn money, and the purpose of the sanctions is to destroy the Russian economy. And so the “brilliant” idea with the price ceiling was born. Way Russia exports oil, but it does not need to pay for it. In this case, everyone is happy – and the world market is saturated, and prices are low, and Russia earns little, ”says Igor Yushkov.
In this vein, it is logical if the Europeans lift the oil embargo on the ability to buy Russian oil at a certain low price.
The second option – when the EU does not lift the embargo – is also possible. In this case, the EU, as expected, will completely abandon the purchase of Russian oil by sea, and all other G7 countries will be allowed to buy it only at a certain price.
The situation is a stalemate, because both options will have sad consequences for the world market. Because Russia has clearly defined its position. It will redirect oil to countries with market conditions in the event of a price ceiling, said Dmitry Peskov, press secretary of the President of the Russian Federation. But Russia will not supply oil and fuel at a loss. “We will not work on non-market conditions,” said Deputy Prime Minister Alexander Novak. According to him, “this will completely destroy the market”, consumers in the EU and the US will be further affected by rising prices.
“Everyone is afraid that by the time sanctions are imposed by the European Union, Russia will not have time to restructure export flows to Asian markets, and it will have to reduce exports, as it did in March and April this year. This will exacerbate the shortage in the world market and lead to a rise in prices,” explains Yushkov.
“In fact, about 2 million barrels per day of Russian oil are now going to Europe, and they will have to be attached to Asian markets by December 5. If Asian countries decide to buy at the price set by the West, then Russia will stop deliveries. If the Asian countries do not obey the G7 and continue to buy our oil at normal prices, then there will be problems with the transportation of raw materials due to sanctions. Whatever one may say, a “perfect storm” is forming in the oil market,” says the FNEB expert.
The G7 is starting to dictate terms to the whole world. It smacks of colonialism,” Yushkov said. However, it is unlikely that China and India will be persuaded to dance to their tune.
China will not refuse to buy Russian oil by sea (and the new sanctions do not affect pipeline supplies), but, most likely, this will now be done not by large companies (to protect them from toxic stories), but by smaller Chinese second-tier companies, believes expert. At least, this is now often the case with export-import between Russia and China. “Because China, on the one hand, says that the sanctions are illegitimate. But, on the other hand, he is very careful about this,” the expert says.
As for India, the problem with the insurance of Russian oil transportation by sea was resolved back in March-April, when the Indians began to actively buy up Russian oil at a discount. Russian companies began insuring the transportation of Russian oil under state guarantees, and this suited India. “Most likely, India will not join such initiatives and will continue to ignore them,” Yushkov said.
Including because China and India understand how this will turn out for them in the end.
“Now they have the opportunity to buy Russian oil at $70-80 per barrel, when the market price is $110. By accepting the idea of a price ceiling, they will lose that opportunity. If Russia fails to build oil in Asia, it will drastically reduce production. The lack of supply on the world market will also increase oil prices from other suppliers – they will rise to $150-200 per barrel,” Igor Yushkov concludes.
This means that not only Europe will be at the epicenter of the energy crisis, but also Asian countries. Moreover, the advantage in this case will, of course, be on the side of the rich countries, and not the poor ones.
The oil crisis is of little use to anyone in the world. Especially when Europe and the world are on the verge of an unprecedented gas crisis. Due to a technical malfunction of the remaining one working turbine, gas supplies via Nord Stream 1 were stopped for an indefinite period. If Germany, the EU and Canada do not resolve the issue of repairing turbines and removing them from sanctions without the possibility of returning these sanctions, then the world will face a fierce fight for LNG this fall and winter, and the expected prices of $4,000 per thousand cubic meters may be far away not the limit. Against this background, the threat of the head of the European Commission, Ursula von der Leyen, to introduce a price ceiling mechanism for Russian pipeline gas also looks like a shot in his own heart.