While the price cap permitted non-EU nations to continue importing Russian crude oil, it also made it illegal for shipping, insurance, and re-insurance firms to handle cargo of Russian oil worldwide unless it was sold for less than the price cap.
Gradual reduction of the purchase limit is the best way
The sanctions that many believed would have the most significant influence on Vladimir Putin’s ability to wage war have been established by Ukraine’s allies for the past 4 months: a price cap on seaborne Russian oil sales handled by Western shippers, insurers, and legal service providers. On refined goods, a matching cap has been included. However, the verdict on their impact is mixed at best now that they have had time to take hold.
Squeezing Moscow’s earnings while maintaining the flow of Russian oil contradicts goals. A case in point is the unsightly act of US officials pressing different Western oil traders to resume shipping Russian oil after they had freely ceased doing so. The major dealers had essentially abandoned the enterprise. But as a result, Russian oil traffic has been increasingly conducted by a shadow fleet run by unrecognized firms with outdated vessels.
The Biden administration successfully persuaded its allies to weaken the ban so that it only applies above a cap, set at $60 per barrel, out of concern for the domestic political repercussions that would arise if a sudden removal of Russian supplies from global oil markets were felt at US gas stations.
The majority of punishing governments claim that the strategy has largely been successful. The benchmark for the Urals trades at a significant discount to the global Brent price. The volume of exports appears to be essentially steady despite Russian threats. The global market has also been well-supplied, albeit it was a surprise when Opec and its partners decided to reduce oil production by more than 1 million barrels per day last week. Washington seemed to have achieved success at first sight.
The goal should also be to gradually reduce the level of the caps, albeit the effect of the Opec+ reduction on oil prices will need to be considered. It makes sense to try and decrease Putin’s oil income. Frequent assessments of the cap level are required by EU sanctions legislation, but the sanctioning coalition has so far put that issue on the back burner.
Backdoor through India
Preliminary ship-tracking data from Kpler and Vortexa revealed that record-high crude oil imports from Russia in fiscal 2022–23 helped India’s refiners increase diesel and jet fuel shipments to Europe while the continent rejected Russian goods.
The availability of inexpensive Russian crude has increased productivity and earnings at Indian refineries, allowing them to export refined goods to Europe at a competitive price and capture a larger market share.
Before Russia invaded Ukraine, Europe bought 154,000 barrels per day (bpd) or more of diesel and jet fuel from India.
After the European Union forbade the import of Russian oil products beginning on February 5, Kpler statistics showed that it jumped to 200,000 bpd.
The report indicated that India’s imports of Russian oil increased in March for the seventh consecutive month to complete the fiscal year as the top supplier to India, overtaking Iraq for the first time.
While India imports most of Russia’s flagship grade Urals, refiners also bring in lighter Far Eastern and Arctic grades, including Sokol, Arco, Novy Port, and ESPO blend.
The leading Indian refiner Indian Oil Corp (IOC.NS), and Russia’s largest oil producer Rosneft (ROSN.MM), have agreed to a long-term agreement that will significantly boost and diversify the types of oil transported to India.
Japan gets around Russian oil restrictions
The G7 countries and Australia agreed upon the price cap on seaborne crude oil to lower Russia’s revenue from oil sales while preventing a spike in global oil prices. Still, it also forbade shipping, insurance, and re-insurance firms from handling cargoes of Russian crude unless it was sold for less than the price cap, the report said, noting that an exception to the price cap was granted through September for oil purchased by Japan; and in the first two months of this year, Japan purchased more oil than.
Also, Japan purchased about 748,000 barrels of Russian oil in the first two months of this year for about $70 per barrel.