Russia poised to skirt new G7 oil price cap

LONDON:

Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players and a US official told Reuters, underscoring the limits of the most ambitious plan yet to curb Moscow’s wartime revenue.

The Group of Seven countries agreed last month to cap Russian oil sales at an enforced low price by December 5 but faced consternation from main players in the global oil industry who feared the move could paralyse trade worldwide.

The forecasts on the resilience of the Russian oil trade and details of the discussions between Washington and the global oil and services industry have not previously been published.

Estimates that up to 80-90% of Russian oil will continue to flow outside the cap mechanism if Moscow seeks to flout it are not unreasonable, a US Treasury official told Reuters. In such a scenario, only between 1 and 2 million barrels per day (bpd) of Russian crude and refined products exports could be shut in, said the official, who declined to be named due to the sensitivity of the situation. Russia exported over 7 million bpd in September. “In theory there is a big enough shadow fleet to continue Russian crude flows after December 5,” Andrea Olivi, Global Head of Wet Freight at commodities trading giant Trafigura told Reuters.

Bank JP Morgan sees the impact of the price cap as muted, with Russia almost completely skirting the ban by marshalling Chinese, Indian and its own ships – whose average age is nearly two decades old – relatively ancient by shipping standards. That could leave Russian exports in December reduced by just 600,000 bpd compared with September, the bank added.

Daniel Ahn, a former chief economist at the US State Department, says the countries sanctioning Russia overestimated their control of the global oil trade and that changes to their policy were aimed at reducing self-harm.

“All it’s going to do is reroute oil ... and make life difficult for everyone else,” said Ahn, a global fellow at the Woodrow Wilson International Center for Scholars.

Published in The Express Tribune, October 22^nd, 2022.

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