Oil ceiling for Russia from G7: application features

The G7 finance ministers agreed to set the maximum level of oil prices, according to which the world community will be asked to purchase Russian “black gold” in the coming years. Specific levels of restrictions will still be discussed, but Russia has already stated that it does not intend to sell energy resources at a loss. To whom and at what prices our country will be able to export hydrocarbons in the future, MK experts said.

Initiating new restrictions, the G7 members are going to create “a broad international coalition, prohibiting the provision of any services for the sea transportation of Russian oil if the raw material is sold at a price higher than the agreed limit.”

In general, the most important parameter – the size of the ceiling – was not determined by the meeting participants. But they revealed some features of the mechanism of the introduced limit. To comply with the restrictions, there will be a ban on serving the sea transportation of oil and oil products from Russia purchased at a price exceeding the ceiling. At the same time, insurance and financing of companies transporting such oil will be prohibited.

Russia, through the mouth of Presidential Press Secretary Dmitry Peskov, has already responded to the decision of the G7 ministers. According to him, if unfriendly countries limit oil prices, Russia will stop interacting with them on such non-market principles. The spokesman noted that in the case of the introduction of a “ceiling” of prices, oil will go in alternative directions to those countries that operate on market conditions. According to him, there are “much more such countries than the previous ones,” but Peskov did not specify which countries he was talking about.

Here it is appropriate to note that, according to the estimates of fuel and energy experts, in the pre-sanction period, the share of the G7 countries accounted for about a third of the export of “black gold” from Russia. Over the past six months, this figure has clearly become smaller, but, as is known, the exact statistics on this score are not made public in the current geopolitical situation by decision of the government.

The members of the Western coalition have not yet specified the parameters of their agreements. But what kind of ceiling will suit Russia? “As Deputy Prime Minister Alexander Novak said earlier, this year the comfortable level of oil quotations for the federal treasury will be $65-80 per barrel. At the same time, the Russian budget for 2022 includes a benchmark for an oil price of $44.2 per barrel,” notes BitRiver financial analyst Vladislav Antonov.

As for the “broad coalition” of countries that can adopt the notorious ceiling, the expert doubts that the key players in the global energy market – China and India, whose industry requires significant supplies of hydrocarbon fuel, will join their number. These countries in recent months have sharply increased the supply of “black gold” from our country. For example, exports to Indian consumers reached record levels, approaching a million barrels per day, which made Russia the third largest supplier of raw materials to the country after Iraq and Saudi Arabia. In general, India and China already account for more than 40% of Russian oil exports – that is, more than the G7 countries.

“It is unlikely that India and China will agree to support Washington’s initiative to introduce a ceiling on oil, since the former earns from the processing and further sale of finished fuel, while the other buys our “black gold” at a discount anyway,” explains Antonov.

At the same time, Russia, reorienting its supplies from the West to the East, goes to trade with discounts. If in mid-July Bloomberg calculated that Russian oil is sold to China 10% cheaper than similar grades from Brazil, then in the last days of August, Indonesian Tourism Minister Sandiaga Uno announced “Russia’s proposal to sell its barrels” at a price 30% lower than in the international market.”

However, with all the discounts, Russia clearly does not intend to trade oil at a loss. “For some reason, the West is confident that Russia will agree to sell oil for a conditional $50 at a market price of $100. It is nonsense! – Nikolai Pereslavsky, an employee of the Department of Economic and Financial Research at the CMS Institute, believes. – Shipments to Asia, China and India have been growing exponentially in recent months. In turn, Europe will have to replace supplies from Russia with something, which will accelerate the rise in prices, since there are simply no additional volumes on the world market to replenish the fuel supply from our country. Russia will calmly sell fuel to Asia, and Europe will simply have to overpay for new contracts,”

However, the West intends to deal another blow to Russian oil exports in the field of oil transportation. It is no secret that our country, sharing the world championship in oil production with Saudi Arabia and the United States, does not have enough sea tankers to deliver raw materials to foreign customers, which makes domestic producers dependent on foreign shipowners. Accordingly, now, if the cost of raw materials sold from our country abroad exceeds the price limits prescribed by the G7, then oil companies will have to accept that they may be denied the provision of a tanker fleet.

But even here there are some nuances that reduce the effect of this measure. Firstly, it is doubtful that domestic suppliers of “black gold” will have to report on prices to shipping companies without fail. Transport firms are only intermediaries, and the cost of oil in the agreements concluded is a commercial secret. For the disclosure of details will be responsible for the carriers. Moreover, not before government organizations, but before trading partners, who will be able to either promptly recover the disputed amount, or completely refuse to cooperate. Secondly, even if detailed information about the cost of oil can be obtained from the accompanying documents, including an insurance policy to ensure the safety and timing of the delivered cargo, there will still be ways to bypass the fuel moratorium. One of the most effective is mixing different grades of oil directly on tankers at sea.

“With the G7 ultimatum obliging us to sell oil two to three times lower than stock quotes, Russia simply will not agree and sell fuel on other markets,” said Gleb Finkelshtein, a specialist in the strategic research department at Total Research. According to him, the existing proposals on the Asian market demonstrate the demand for raw materials from Russia. Yes, speculative short-term contracts will increase, but China and India, even with a 30% discount, will still offer higher prices than the possible limits that the West intends to set.