The EU wants to lower the price ceiling for Russian oil: the losses will be catastrophic

Moscow will have to forget about energy windfall for a long time

Estonia called on the European Union to lower the price ceiling for Russian oil. According to Foreign Minister of the Baltic state Urmas Reinsalu, the restriction should be lower than the market value of “black gold”. The countries of the Old World, having agreed with great difficulty at the end of last year on the price limit of our export raw materials, are in no hurry to give an answer to Tallinn. However, the threat of such a decision remains quite real. In turn, Russia is still “enough” of the already established ceiling of $60 – due to a significant decline in oil and gas revenues, the budget deficit reached a record high of almost 1.8 trillion rubles in January.

“The ceiling set for Russian oil worked and did not cause a global fuel crisis, so it is reasonable to lower it from $60 per barrel,” said the head of the Estonian diplomatic department. According to him, the real price of “black gold” exported from our country is below the established level, so there is an opportunity to further cut Moscow’s raw material revenues.

Tallinn already made a similar proposal in December last year – immediately after the official decision of the EU to introduce a “ceiling” on Russian oil. That resolution was not easy for the European countries – the verdict had to be agreed unanimously, but Serbia openly sympathized with Moscow opposed its adoption. However, under pressure from other members of the union, Belgrade eventually had to join the energy sanctions. Despite the fact that Tallinn’s initiative was taken up by Poland and Lithuania, who consider the “ceiling” of $40-50 to be a fair limit, most EU members are in no hurry to open new debates on this issue. In general, the West seems to be satisfied with the current limit on the cost of oil exports from Russia. At least, as Assistant Secretary of the Treasury Ben Harris recently admitted, his department has no evidence of our country’s attempts to circumvent the price ceiling set by the G7.

Moscow, on the other hand, is categorical about the next Western fuel sanctions. According to Deputy Prime Minister Alexander Novak, our country will not sell oil to those importers who supported the introduction of the “ceiling”. Moscow is trying to show that the price cap is not a death sentence for the domestic raw material industry and the economy as a whole – according to the Deputy Prime Minister, today our country “completely sells the entire volume of produced” black gold “. However, it was the “ceiling” that forced Russian producers to reduce their production by 500 thousand barrels per day in March. And the treasury is beginning to burst at the seams due to Western restrictions – in January, due to a drop in oil and gas revenues by more than 28%, the federal budget deficit reached a record for this month over the past two decades of 1.76 trillion rubles.

According to the head of the analytical department of AMarkets Artem Deev, in fact, the idea to lower the ceiling on oil prices from Russia does not come from Tallinn, whose representatives only voice it. This step has been announced by the White House more than once, insisting that a positive decision on this matter be made no later than March. At present, the average cost of Russian “black gold” is about $50 per barrel, while the quotes of the benchmark Brent brand are above $80. Before the imposition of sanctions, the Russian grade Urals traded at a discount of $2-4 to the North Sea standard, and now the discount exceeds $30. Such significant concessions to buyers lead to significant financial losses.

According to Natalia Milchakova, a leading analyst at Freedom Finance Global, after the new law on taxation of the oil industry, which provides for limiting the size of the discount to foreign buyers of hydrocarbons, the discounts are likely to be more modest. However, our oil companies will still have to provide bonuses to new clients such as India and China. The discount will be necessary for more successful competition with the Middle Eastern mining powers, primarily with Saudi Arabia, which is constantly fighting with our country for the championship in the sale of “black gold” to the same Celestial Empire.

“Even taking into account discounts and export duties, the Urals price of $50 allows our oil companies to receive at least $5 profit from each barrel sold abroad,” the expert calculated. However, such revenues can be counted on with the same geography of foreign supplies of hydrocarbons, that is, when exporting raw materials to the European market. A change in the trading vector towards Asia threatens to reduce revenue to a minimum. We must not forget about the significant increase in the cost of transporting hydrocarbons to the end consumer, Milchakova believes. As a result of the embargo, oil exports from our country, half of which previously went to the states of the Old World, are now largely reoriented to the Asia-Pacific region. The average distance of transportation of Russian energy resources on oil tankers from the Baltic ports has tripled – from 5,000 to 15,000 kilometers. Freight rates for specialized cargo ships have also increased: if last summer it was possible to rent a medium-sized tanker for the supply of raw materials from the Baltic Sea to India for only $9 million, now for a similar raid you have to pay at least $15 million.

Russia’s budget includes an average annual oil price of $70, so our country is already losing about $20 per barrel of oil sold. In January alone, the Treasury’s oil revenues turned out to be more than 50 billion rubles less than the planned level due to lost tax revenues. In February, after the introduction of the EU embargo on Russian oil products, the Ministry of Finance predicts a reduction in this revenue item at the level of 108 billion rubles. “If the collective West nevertheless lowers the price ceiling, and the threat of such a decision remains in place, then the average cost of Urals could fall to $40 per barrel, and holes in the budget will increase almost to a catastrophic level,” warns Artem Deev .