LONDON (Reuters) – Russia can access enough tankers to ship most of its oil beyond the new Group of Seven price ceiling, industry players and a U.S. official told Reuters, underlining the limits of the most ambitious plan yet to rein in Moscow. Wartime proceeds.
The Group of Seven agreed last month to limit Russian oil sales at a low imposed price by Dec. 5, but faced panic from major players in the global oil industry who feared the move would paralyze trade around the world.
Months of discussions between the United States and those insurance, trading and shipping companies have allayed concerns about their exposure to sanctions, but all sides now understand that Russia can largely circumvent the plan with its ships and services.
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Forecasts on the resilience of Russia’s oil trade and details of discussions between Washington and the oil industry and global services have not been released.
A US Treasury official told Reuters that estimates that between 80 and 90 percent of Russian oil will continue to flow outside the cap mechanism if Moscow seeks to mock it is not unreasonable.
The official, who asked not to be named due to the sensitivity of the situation, said that in such a scenario, only between one and two million barrels per day of Russia’s exports of crude and refined products could be closed.
Russia exported more than 7 million barrels per day in September.
This could pose financial and technical difficulties for Russia, but it could also deprive the world of 1-2% of global supply, just as inflation is on the rise and stagnation is imminent.
The official added that the United States is aware of some ships changing to their countries of origin and moving commercial entities beyond the G7 in order to evade the plan.
Russia will incur costs from having to take longer trips and refer them to substandard insurance and financing, the official said, making the United States optimistic that Russia will have to sell within the price ceiling over time.
India and China have increased their purchases of Russian oil with deep cuts in recent months, but neither has set a cap. India said this week it would study the plan.
The US sees the price cap as enabling China and India to buy Russian oil at lower prices, which benefits their economies.
Veterans of industry and politics have seen the limits of a plan that initially looked as if the entire Russian oil trade was in the crossfire but whose scope could now be drastically diminished.
“Theoretically, there is a shadow fleet large enough to continue the flows of Russian crude beyond December 5,” Andrea Olivier, global head of wet freight at commodity trading giant Trafigura, told Reuters.
“A lot of these shadow ships will be or will be able to be self-insured by Russia’s P&I,” he added, referring to P&I insurance.
Bank JP Morgan sees the price cap effect as muted, with Russia completely avoiding bans by regulating Chinese and Indian ships and their vessels – which have an average age of nearly two decades – are relatively old by shipping standards.
That could leave Russian exports down in December by only 600,000 barrels compared to September, the bank added.
According to Norbert Rucker, Head of Economics and Next Generation Research at Swiss Wealth Manager Julius Baer, it’s not just about ships, but the services needed to keep them flowing and oil shipments flowing.
“Oil traders who deal in Russian oil are no longer in Switzerland, Geneva or London. More come from the Middle East,” Rucker told Reuters.
“If you look at Asian buyers of oil, ships and insurance – it seems that this is increasingly being done from Asia.”
Is it a foot shot?
The United States has marketed the G7 plan agreed in September to industry players as a safety valve for the EU’s blanket ban on Russian shipments that was ratified in June.
Protection and compensation services complying with EU law guarantee 95% of the world’s ship-borne oil trade, meaning the EU’s move could have halted most Russian exports.
It may have bounced back on sanctioning countries by driving up energy prices amid an already deep cost-of-living crisis as a possible global recession approaches.
The insurance and shipping industry figures are still at risk of sanctions that could turn trade upside down even in the dissolution of the G7 cap. The European Union ratified the price cap this month, but details on its implementation are still imminent.
The US official said the policy was specifically designed so that it would be easier for companies to verify or certify that prices were being sold below the cap.
The official added that the cap was not intended to be punitive towards the industry and would allow them to keep certificates and not be forced to submit them to a central registry.
This would be lenient enough to allow insurers to require buyers of Russian oil to pledge in writing that sales will be made at or below the maximum price for the life of the insurance policy.
An industry official familiar with the matter considered this certification policy “positive” and believed that Washington now realizes that insurance companies cannot enforce the policy themselves.
Another said that with six weeks left before the sanctions go into effect, the insurance industry still wanted more details about how certifications would work and was concerned that EU regulations still did not state the process or define its obligations.
Daniel Ahn, the former chief economist at the US State Department, says countries that have imposed sanctions on Russia have overestimated their control over the global oil trade and that changes and clarifications in their policy are aimed at limiting self-harm.
“All you are going to do is redirect the oil … and make life difficult for everyone else, which is happening now anyway,” said Ahn, Global Fellow at the Woodrow Wilson International Center for Scientists.
“It would be less harmful than a complete maritime import ban. They shot their feet, but now they’re kind of trying to bandage it a little bit.”
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Additional reporting by Julia Payne. Editing by Margarita Choi and David Evans
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