Could easily employ sanctions-avoiding mechanisms perfected by Iran
The European Union continues its work to fine-tune the proposal to set price caps on Russian oil products. Last Friday, EU ambassadors strove to reach a broad agreement on the issue but could not. They are now scheduled to continue their deliberations this week. There are indications that the EU would be able to strike a consensus over the issue during the week.
Media quoting EU officials said last week it has proposed setting up a US$100 per barrel price cap on premium Russian oil products like diesel and a US$45 per barrel cap on discounted products like fuel oil.
Consensus on the issue, however, is still missing. “The meeting is over. The proposal from the Commission was discussed and will be reviewed further in the coming week. There were no conclusions today,” one EU diplomat told the press Friday after the meeting.
|Will Europe freeze in the dark if the U.S. imposes sanctions on Russia?
|Russia vs Ukraine: Is diplomacy dead?
|Russian oil price cap is a go. But will it work?
Reading Time: 4 minutes
|NOT YET A PREMIUM MEMBER?|
Working to arrive at a consensus is not that simple. Setting a price cap on Russian oil products could be much more disruptive than halting crude purchases, says Julian Lee of Bloomberg. The U.S. Treasury Secretary, Janet Yellen, conceded last week that setting up the new price caps had proven “more complicated” than for crude, given the range of refined products and price structures and the importance of ensuring continued supplies of Russian diesel to the market.
“It’s more complicated, but we’ve been working hard to figure out how to achieve the same objectives,” as with the broader cap on Russian crude, she said.
“You know, there’s always the potential that things may not go according to plan, but we’ve studied these markets very carefully, and we believe that we’re going to come out with a set of caps that will achieve the same things that we’ve achieved with crude so far,” Yellen said, adding that (further) adjustments could still be made over time.
But there is a flip side to the possible sanctions on Russian fuel export. If European buyers cannot find alternative supplies, the sanctions would heap new costs on diesel-reliant industries such as farming and road haulage and make it harder for governments to rein in inflation, the Washington Post reported in a recent piece.
How Russia would react to the new sanctions remains another piece of the jigsaw puzzle.
Russia can still work around any price caps or sanctions that G7 or any other group cares to put into place through the myriad of sanctions-avoiding mechanisms put into place by Iran since it came under various sanctions in 1979, Oilprice.com said.
In that piece, Simon Watkins added that to get more oil into Europe at better prices than the price cap allows would be no problem for Russia by utilizing the basic shipping-related sanctions-stepping method of just disabling – literally just flicking a switch on the ‘automatic identification system’ on ships that carry Russian oil. Simply lying about destinations in shipping documentation is another tried-and-trusted method, as boasted about by Iran’s former Petroleum Minister, Bijan Zanganeh, when he said in 2020: “What we export is not under Iran’s name. The documents are changed over and over, as well as [the] specifications.”
Some Russian fuel may be shipped at uncapped prices via a “shadow” tanker fleet that isn’t reliant on western services. Potential replacement customers for Russian fuel include Turkey and countries in Africa and Latin America, the Washington Post also said in a report.
Moscow is also working to ensure its tax income from sales of crude and fuel. This tax helps Russia manage its budget, especially at a time when it needs more petrodollars to finance its war machinery.
One step under consideration is to change the mechanism of assessing the price for Russia’s Urals crude oil export blend. Michael Ritchie of Energy Intelligence Group reported that this carries important implications for calculating Russia’s mineral extraction tax (MET) and other oil industry levies that form the bedrock of the country’s oil and gas revenues.
As per the Vedomosti business daily, the possibility of linking the price of Russian Urals to a monthly average of the Brent and Dubai crude benchmarks and applying a discount of US$10 to US$15/barrel has also been floated and discussed. The move could automatically raise the average Urals price used for tax calculations to over US$70/barrel – a threshold for Russia’s budget for 2023, underlined Ritchie.
Moscow has several other options under consideration too. Putting Russia on the mat does not seem possible at this moment.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
For interview requests, click here.
The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.
© Troy Media
Troy Media is an editorial content provider to media outlets and its own hosted community news outlets across Canada.