Post by mhbruin on Dec 13, 2022 10:25:13 GMT -8
This is Just a Crude Attempt to Hurt Putin. It Is Working
On December 5, a $60 per barrel price cap on Russian seaborne oil – agreed upon by the European Union, the G7 and Australia just a few days earlier – came into effect, marking the beginning of a new phase in the economic war between Russia and the West.
The price cap may be one of the most significant ripostes to Russia’s weaponisation of its energy reserves since the beginning of its all-out invasion of Ukraine, but what it entails and hopes to achieve appear to be widely misunderstood.
Despite what many seem to believe, the price cap is in no way an effort to end Russian crude exports. On the contrary, it aims to ensure that they continue to flow despite ever-tightening regulations and sanctions – albeit not to Western markets. Indeed, China, India and many other third countries who have been purchasing Russian crude in large quantities and at heavily discounted prices since February are still free to do so. The purpose of the cap is not to stifle these purchases but to limit Russia’s profits – which are mainly used to finance its war effort – by ensuring the current discounts are permanent.
The West will implement the cap simply by refusing to provide essential services, such as ship brokerage and insurance, for Russian crude that is sold above the limit.
As recently as in June, for example, roughly two-thirds of Russia’s seaborne crude exports were still being carried by ships that belong to nations that have imposed sanctions on it.
To address this crippling dependency and blunt oil sanctions, the Kremlin has sought to swiftly build a “shadow fleet” to transport its own crude. But that shadow fleet also found itself dependent on Western services – such as the insurance nations require to be in place to accept oil shipments – and thus subject to sanctions.
To avoid being dependent on multinational insurers who comply with Western sanctions, Putin’s Kremlin has sought to develop its own insurance. But many nations, most notably China and Turkey, have refused to accept this Russian workaround insurance.
The impact of Chinese and Turkish denial was significant given the former is Russia’s principal purchaser, and the latter is the country that controls the Bosphorus – Russian exports’ primary way out of the Black Sea.
On December 5, a $60 per barrel price cap on Russian seaborne oil – agreed upon by the European Union, the G7 and Australia just a few days earlier – came into effect, marking the beginning of a new phase in the economic war between Russia and the West.
The price cap may be one of the most significant ripostes to Russia’s weaponisation of its energy reserves since the beginning of its all-out invasion of Ukraine, but what it entails and hopes to achieve appear to be widely misunderstood.
Despite what many seem to believe, the price cap is in no way an effort to end Russian crude exports. On the contrary, it aims to ensure that they continue to flow despite ever-tightening regulations and sanctions – albeit not to Western markets. Indeed, China, India and many other third countries who have been purchasing Russian crude in large quantities and at heavily discounted prices since February are still free to do so. The purpose of the cap is not to stifle these purchases but to limit Russia’s profits – which are mainly used to finance its war effort – by ensuring the current discounts are permanent.
The West will implement the cap simply by refusing to provide essential services, such as ship brokerage and insurance, for Russian crude that is sold above the limit.
As recently as in June, for example, roughly two-thirds of Russia’s seaborne crude exports were still being carried by ships that belong to nations that have imposed sanctions on it.
To address this crippling dependency and blunt oil sanctions, the Kremlin has sought to swiftly build a “shadow fleet” to transport its own crude. But that shadow fleet also found itself dependent on Western services – such as the insurance nations require to be in place to accept oil shipments – and thus subject to sanctions.
To avoid being dependent on multinational insurers who comply with Western sanctions, Putin’s Kremlin has sought to develop its own insurance. But many nations, most notably China and Turkey, have refused to accept this Russian workaround insurance.
The impact of Chinese and Turkish denial was significant given the former is Russia’s principal purchaser, and the latter is the country that controls the Bosphorus – Russian exports’ primary way out of the Black Sea.