Sanctions designed to keep the price of Russian oil low seem to be working
Sanctions designed to keep the price of Russian oil low seem to be working
There are signs that sanctions on Russian oil — including a price cap — seem to be working, at least to some extent.
There was some skepticism about whether Europe, Australia and the Group of 7 leading industrial countries could actually pull it off, but Russian oil is trading at prices well below those of oil from other countries.
The bottom line is, this should mean less revenue for Russia to finance its war in Ukraine. But there’s a lot left to play out.
“These countries barred all of the support services that are used for seaborne exports for any transaction above $60 a barrel,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies.
You’re buying oil and want boat insurance? “$60 a barrel.” You want financing for that oil? “$60 a barrel.” Commodity brokering services for that oil? Once again, “$60 a barrel,” Cahill said.
G-7 countries were able to force this because they provide 90% of these maritime services, Cahill said. But at least as important as the price cap has been the fact that most of Europe is embargoing Russian oil.
“Russian oil exports have already fallen somewhat, so in December, they were just under 20% lower than they were the previous month,” said Euan Craik, president of petroleum at Argus Media.
One type of Russian oil called Urals is half the price of the European benchmark, according to Argus Media. Russia is diverting some of that oil to India, Turkey and China.
India has gone from importing zero Russian oil to 1.2 million barrels a day, Craik said. But “when you have to ship your crude to markets like China and India, you have to pay money to ship it there and, for it to be competitive, the price has to be lower.”
But if the goal of these sanctions is to deal a gut punch to Russia’s oil revenue, that’s not happening, said Ken Egan, European sovereign analyst for KBRA.
“Russian revenues have somewhat dwindled in 2022, but relative to recent years, revenues are still substantially high,” he said.
And some reasons for the sanctions appearing to work have nothing to do with the sanctions — oil demand has been depressed by a mild winter in Europe, and China’s oil-hungry economy hasn’t yet fully woken up from the country’s “zero-COVID” policy, added Joan Feldbaum-Vidra, senior managing director at KBRA.
“A lot depends on the global macro situation, as well as in terms of demand,” she said.
The longer the price controls and embargo persist, Feldbaum-Vidra said, the more opportunities to cheat those sanctions — and the greater the risk to their effectiveness.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
