While the European ban on the import of Russian oil comes into force today, the oil-producing countries have decided to keep production unchanged. “It is not clear how much Russian oil will disappear from the market,” says energy specialist Jilles van den Beukel of the Center for Strategic Studies in The Hague. It’s also not clear what that means at the pump.
Van den Beukel expects OPEC to wait and see how it develops before acting. On the one hand it is unclear how much Russian oil will disappear from the market, on the other hand there is a lot of uncertainty about demand from China, which is grappling with the corona virus and the oncoming global recession.
Maritime
According to Van den Beukel, the embargo that comes into force today is a partial embargo that applies only to shipping. In addition, the price cap will come into force for EU countries and G7 countries, meaning that insurers and shipping companies can only insure and transport oil sold at $60.
But who will control it? According to Van den Beukel, it will be a customs issue. In practice, however, the control will immediately encounter two problems: is the oil coming from Russia? And at what price was the oil sold? “It’s not that easy, in terms of implementation we’ll just have to wait and see how things go.”
China and India
According to Van den Beukel, Russia will not only export more and more oil to India and China (a trend that has been going on for some time), but it is also possible that oil will be repurchased by Europe in a roundabout way. For example, a refinery in India can buy cheap oil, process it into expensive diesel and sell it back in Europe.
The price cap and the embargo will hurt Russian exports, and thus Russia’s war chest, in the long run. In the near term, there could be upward pressure on oil prices. And that’s a bad side effect; ‘We don’t want that. The challenge for the EU and the G7 is to strike a balance between hurting Russia and not hurting themselves.’
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Pump
It is not clear to what extent consumers will suffer the consequences of the embargo and the price cap at the pump, because these are two opposite effects. On the one hand, there is upward pressure from increasing scarcity, on the other hand, there is downward pressure from recession fears and developments in China.
Don’t rock the boat
According to Europe correspondent Stefan de Vries, the measure is intended “not to disturb the oil market too much”. The top price is $60 for a barrel of crude oil, but it was still trading for $57 from Russia last week, mainly in India and China. Furthermore, according to De Vries, the Russians can still circumvent the sanctions in various ways; “There are still opportunities in Asia, but European ports can also import Turkish diesel from Russia.”
Soon also diesel
Ukraine, meanwhile, says the price cap doesn’t go far enough. Although Kiev wants to set the ceiling at 30 dollars a barrel to hurt the Russians, according to De Vries the current measures can already be a blow to Russian state finances because Europe has already cut purchases by two thirds since the beginning of the war subsided. When Russian diesel is also embargoed in February, it will have a greater impact, including on Europe itself.
OPEC scared
A fifth of the Russian oil that flows into Europe still enters through an oil pipeline, a flow that therefore does not fall under the embargo because the exclusion concerns maritime transport. This mainly concerns deliveries to Hungary. According to De Vries, OPEC is not cooperating with the embargo because the club is afraid of setting a precedent if the sanctions are found to be taking effect.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
