Oil is being driven to the ceiling: what threatens Russia with a price maximum
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Our country may lose half of its export earnings from the sale of “black gold”
As you know, the countries of the G7 and the European Union agreed to impose the toughest sanctions on Russian oil starting December 5. We are talking about the introduction of a price ceiling for the export of Russian “black gold”. But the Western countries have not yet agreed on the parameters of this very ceiling. Bloomberg claims that America is in favor of a cap of $60 per barrel (at current prices of about $90). And Reuters claims that Russia can easily bypass such a restriction.
How serious will the sanctions strike on Russian oil be? Will the price ceiling crush the domestic economy? Will there be alternative supply routes for Russian oil? We discussed these issues with a specialist, TeleTrade’s chief analyst Mark Goykhman.
— Let’s first outline the current picture of our oil exports. What volumes do we deliver abroad and how?
— In 2021, according to the Federal Customs Service, Russia sold abroad about 230 million tons of crude oil worth $111 billion. The average price was about $480 per ton. Petroleum products are the result of the primary processing of oil, which serves as a raw material for petrochemicals. Over the year, 144 million tons of various Russian fuels worth $70 billion were sold on foreign markets.
– How sensitive is this measure for us – the price ceiling for the export of oil and oil products?
– Russia will feel very strongly the partial embargo on the sale of oil to the EU, introduced in December 2022, and oil products in March 2023. The European Union accounts for more than half of the export of “black gold” and processed products. According to Bloomberg estimates, the loss of the national budget of our country risks reaching $22 billion a year. Including approximately $12 billion of this amount will come from a reduction in pipeline supplies to Europe and $10 billion from a ban on exports to the Old World by sea. The income of about $6 billion from oil supplies remaining outside the embargo through the southern branch of the Druzhba pipeline to a number of Eastern European countries – Hungary, Slovakia and the Czech Republic will remain.
At the same time, the potential reduction in sales to European countries in physical terms is estimated at about 2.5–3 million barrels of oil and 1.5 million “barrels” of petroleum products per day.
– Will our country be able to replace these falling volumes of oil exports by redirecting resources to other regions? First of all, to Asia – to China or India?
– Unused spare capacity of the main Russian export pipeline in the Asian direction, the East Siberia-Pacific Ocean pipeline, is 300 thousand barrels per day. About 200,000 more “barrels” can be additionally delivered to Asia by rail every day. This is approximately 20% of the reduction in Russian oil supplies to the West. Building this infrastructure will require huge investments and a very long time.
– Will Russia be able to increase sea tanker transportation under the ceiling?
– As you know, the announced measure is to ban banks and insurance companies from providing insurance and financing for the movement of tankers engaged in such transportation. Leading positions in the market of tanker transportation of hydrocarbons are occupied by European companies, in particular, from Greece, Cyprus or Malta. The insurance of these transportations is also mainly concentrated in the hands of European companies. For them, EU bans can be very significant.
— What can Russia do in a situation when the oil ceiling turns from a hypothetical threat into a real mechanism?
“Our top officials have repeatedly stated that when a price limit is imposed on the sale of oil, Russia will simply refuse supplies to countries that have acceded to this agreement. Asian, Latin American and African consumers do not confirm their readiness to comply with Brussels’ ultimatums. Therefore, if the West introduces the notorious price ceiling for our energy resources, a new capacious niche for transportation, insurance, and financing of Russian oil exports will form on the global market. It is quite likely that the issues of insurance and charter of ships will gradually pass into the hands of new consumers of oil and gas from our country.
– If the embargo on Russian oil for the West is nevertheless introduced in a tough version, how much will we be able to reorient the export flows of “black gold”?
– In any case, it is unlikely that new directions will be able to completely replace the supply of oil and oil products to Europe. We can talk about compensation from about half to two thirds of the falling physical volumes.
Newspaper headline:
Oil is driven under the ceiling
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