Why does the West need sanctions against Russian raw materials

Now this practice has reached the international level. Only instead of “roofs” in the wars for property, the European Union and the “Big Seven” also began to apply price ceilings over Russian energy resources.

Recall that on December 5 last year, the limit price for the Russian export brand of Urals oil at $60 per barrel was fixed by the European Union, the G7 and Australia, which joined them. On February 5, these same countries will introduce two price ceilings at once: $100 (possibly, it will be increased by $10 at the initiative of the Seven) for Russian diesel fuel and $45 per barrel for fuel oil.

Buying companies, as well as banks, carriers and insurers, are prohibited from conducting transactions at prices above the ceiling. For members of the EU and the G7, these prohibitions are more than serious: you can run into criminal prosecution for violations of the sanctions legislation. Residents of states that do not bend under the ceilings face secondary sanctions.

True, Washington and Brussels are in no hurry to punish the disobedient. Brent oil prices are currently quoted at about $85 per barrel. Due to a sharp rise in freight prices, which, admittedly, was caused, among other things, by the oil ceiling, discounts on Urals doubled, and the price of a “barrel” of Russian raw materials in December – early January did not exceed $50. So, it cost significantly below the ceiling. However, the US Treasury has repeatedly warned: as soon as the situation changes, the ceiling will immediately be lowered.

But, on the other hand, the US is not interested in an oil shortage on the world market. Expensive gasoline is turning American voters against the Democratic Party — which already cost Joe Biden supporters control of the House of Representatives last November. Therefore, Washington is trying not to go too far with the ceiling, so that 10-11 percent of the oil supplied by Russia does not leave the world market at all.

Of course, the sanctions war of the collective West is aimed at the complete defeat of the Russian economy. But this is a long-term goal, and moreover, it is hardly achievable at all. Therefore, a number of states unfriendly to us are also pursuing a selfish topical interest – the return of full control over the world hydrocarbon market.

How to do it? To begin with, put pressure on Saudi Arabia and other Gulf states to increase production and exports. Thereby sharply reduce world prices. Previously, the United States sometimes succeeded. In 1986, Riyadh, under pressure from Washington, increased production and exports. As a result, oil traded for no more than $20 per barrel for 15 years, sometimes falling to $14. Many analysts believe that the global collapse in oil prices then served as a trigger for the collapse of the USSR. However, the price of a barrel fluctuates not only because of geopolitical deals. It is still subject to commodity cycles.

In addition, in the history of oil wars, there were cases of victorious marches of suppliers. As happened in 1973 after the Yom Kippur War, when OPEC turned off the oil tap to the countries supporting Israel. Then world prices immediately jumped 4 times, from $3 per barrel to $12.

During the pandemic, within the framework of OPEC +, production was immediately reduced by 10 million barrels per day. Prices, having collapsed in April 2020, almost recovered over the year. In March of last year, after the start of the NWO, oil reached $130 per barrel. By October 1, 2022, OPEC+ restored production, and prices went down. However, this was not enough for the Americans. Back in July, Joe Biden demanded from Saudi Crown Prince Mohammed bin Salman Al Saud to oust Russia from the oil market. But the American president did not take into account that the United States is now a more dangerous competitor in the global oil market than Russia for the Arab world. After all, it is America that has now secured the first place in the world in terms of production. The prince is said to have laughed in the president’s face. And since November 2022 and for the entire current year, OPEC + has reduced oil production by 2 million barrels per day, thereby actually supporting Russia in the confrontation with the West. In any case, Joe Biden called the cuts in production “myopic and in the interests of Russia.”

After that, the Saudis hold a pause, although the current prices are not profitable for them. Their budget, like the Russian one, is based on $70 per barrel.

But still, on February 1, the energy ministers of the OPEC + member countries, following a meeting of the monitoring committee, did not recommend the alliance to change the current level of oil production. The delegates reaffirmed their commitment to the mining plan, which was agreed on October 5, 2022. The next meeting of the committee will take place on April 3.

This decision forces Moscow to independently solve the problem of bringing the prices of oil exports to values ​​that meet the needs of the budget. Recall that you need $70, but for now it turns out not more than $50 per barrel.

So price ceilings are not as harmless to us as some experts believe. Buyers of Urals in the East cannot ignore the figure of $60 when bidding. In addition, due to the oil embargo introduced by the EU on December 5, transport shoulders have significantly lengthened.

It is no coincidence that a year ago, US Treasury Secretary Jeannette Yellen proposed putting price ceilings on Russian hydrocarbons. Moreover, in May last year, she persuaded the European Commission not to plan an embargo, but rather to introduce an oil ceiling. On the one hand, this would make it possible not to destabilize the market, and on the other hand, to cut the revenues of the Russian budget.

However, in the end, both the embargo and the ceilings were announced to us.

Fixing marginal prices for diesel and fuel oil, as well as the corresponding embargo from February 5, will bring even more negative consequences to the domestic fuel and energy complex than limiting the price of crude oil. We will have to look for new markets for the entire hydrocarbon chain. At the same time, it is more profitable for new main consumers, for example, India, to buy crude oil in Russia, then process it themselves and deliver the final products to the same EU and the USA. Embargoes and ceilings on these supplies, of course, do not apply. According to the Argus agency, in January daily deliveries of Urals to the Indian market exceeded 1.36 million (the first place among exporters). This volume exceeded half of the former deliveries of crude oil from Russia to the European Union. And, according to Bloomberg, the import of diesel from India to New York at the beginning of this year increased significantly. No one checked the molecular composition of the fuel.

It’s not exactly a good deal for us. Prices for Indian diesel are lower than in the domestic American market, the transport arm is extra long. This means that Urals has to be delivered to India at extremely low prices. But there is no other way. It is urgent to occupy new market sectors.

However, the Russian authorities, as expected, responded by banning the supply of oil (from February 1) and oil products (in the near future) to buyers, up to the final ones, who decided to join the fixing of marginal prices. On December 27, Vladimir Putin issued a corresponding decree, and on January 30, the government published a decree that provides a mechanism for monitoring prices and suppressing ceiling deals. As expected, Russian oil companies were assigned as extreme. It is they who must monitor the purity of transactions. And also report the collected information to the FCS, which will then transfer everything to the Ministry of Energy. The ministry, on the other hand, must report monthly to the interdepartmental commission on the fuel and energy complex.

But it is difficult to say now how reliable the anti-ceiling barriers will be.

Moreover, many analysts believe that both the government and oil companies will try in the very near future to find many workarounds for price corridors, as well as an embargo. Including exotic ones. So, according to Bloomberg, at the end of last year, Singapore increased its purchases of Russian naphtha, a product of the primary processing of crude oil, by 46 (!) times. There is also a rapid replacement of Greek tankers and British insurance companies by Russian, Indian, Chinese and other non-Western residents.

Behind all these maneuvers, one thing looms: most likely, the escalation of the “ceiling” wars is yet to come.