Russia poised to largely skirt new G7 oil price cap by Reuters

[Tomasz + 1,608]

Russia poised to largely skirt new G7 oil price cap

By Noah Browning, Dmitry Zhdanniko and Jonathan Saul

LONDON, Oct 21 (Reuters) - Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players and a U.S. 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 Dec. 5 but faced consternation from main players in the global oil industry who feared the move could paralyse the trade worldwide.

Months of discussions between the United States and those insurance, trading and shipping firms have mollified concerns on their exposure to sanctions but all parties now realize Russia can largely skirt the plan with their own ships and services.

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 U.S. Treasury official told Reuters.

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, adding this was one of several possible scenarios and it was unclear whether Russia will comply with the cap.

Russia exported over 7 million bpd in September.

That could pose financial and technical difficulties for Russia but would also deprive the world of 1-2% of its global supply just as inflation is on the rise and a recession looms.

The United States is aware of some ships changing their countries of origin and trading entities being moved beyond the G7 to order to evade the plan, the official added.

Russia would incur costs from having to conduct longer voyages and being relegated to subpar insurance and financing, the official said, making the United States optimistic Russia will be compelled to sell within the price cap over time.

India and China have increased purchases of Russian oil at steep discounts in recent months, but neither has endorsed the cap. India said this week it would examine the plan.

The U.S. sees the price cap empowering China and India to buy Russian oil at lower prices, benefitting their economies.

SHADOW FLEET

Industry and policy veterans have seen the limits of a plan which at first appeared to have the entire Russian oil trade in its crosshairs but whose scope could now be greatly diminished.

"In theory there is a big enough shadow fleet to continue Russian crude flows after Dec. 5," Andrea Olivi, global head of wet freight at commodities trading giant Trafigura told Reuters.

"A lot of these shadow vessels will be able to self-insure or they will be able to be insured by Russian P&I", he added, referring to protection and indemnity insurance.

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.

Not just ships but the services needed to keep them and their oil cargoes flowing are on the move, according to Norbert Rucker, head of economics and next generation research at Swiss wealth manager Julius Baer.

"Oil traders dealing in Russian oil are no longer in Switzerland, Geneva or London. They are more coming out of the Middle East," Rucker told Reuters.

"If you look at the Asian buyers of the oil, the ships, the insurance - this seems to be increasingly done out of Asia."

SHOT IN THE FOOT?

The G7 price cap plan agreed in September was shopped by the United States to industry players as a safety valve to total EU bans on Russian shipments ratified in June.

P&I services heeding EU law insure approximately 90% of the world's oceangoing trade, meaning the EU move could have halted most of Russia's exports.

That may have boomeranged back on the sanctioning countries by sending energy prices soaring amid an already deep cost of living crisis as a potential global recession looms.

Insurance and shipping industry figures still saw themselves at risk of sanctions which could upend the trade even in the G7 price cap workaround. The EU ratified the price cap this month but details on implementing it remain forthcoming.

The U.S. official said the policy has been tailor-made so that it is easy for firms to verify, or attest, that prices were sold below the cap.

The cap, the official added, aims not be punitive toward the industry and will allow them to keep the attestations and not force them to submit it to a central registry.

This would be lax enough to allow insurers to ask buyers of Russian oil to pledge in writing that sales would occur at, or below the price cap for the duration of their policy period.

One industry official familiar with the matter viewed this attestation policy as "positive" and believes Washington now understands that insurers cannot enforce the policy themselves.

Another said that with six weeks to go before the sanctions take effect, the insurance industry still wants more details on how the attestations would work and is concerned that EU regulations still do not mention the process or set out their obligations.

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

"All it's going to do is reroute oil ... and make life difficult for everyone else, which is what is happening right now anyway," said Ahn, a global fellow at the Woodrow Wilson International Center for Scholars.

"It's going to be less damaging than a complete seaborne import ban. They shot themselves in the foot, but they're now kind of trying to bandage it a bit."

https://www.reuters.com/business/energy/russia-poised-largely-skirt-new-g7-oil-price-cap-2022-10-21/

[Tom Nolan + 2,443]

19 hours ago, Tomasz said:

Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players and a U.S. official told Reuters

There ya go. Good article posted Tomaz. The West just puts out PR propaganda.  But, most all countries and media use propaganda daily to brainwash their masses.  When a country's leader goes against the narrative (like Tanzania during the Pandemic, then they end up dead.)  The real war is on us, the people, the individual who desires liberty and freedom.  The East vs West or Republican vs Democrat is designed to keep the brainwashed masses distracted from what is really going on.  The real war is on us so that their Technocratic "controlling the masses agendas" can move forward..

[Tomasz + 1,608]

Biden Team Reworks Plan for Russia Oil-Price Cap as Markets Sour

Price cap level trending higher than initial US plans

Many countries have refrained from committing to cap

US to Rework Russian Oil-Price Cap Plans

by Saleha Mohsin, Alberto Nardelli, and Ewa Krukowska

October 26, 2022 at 10:31 PM GMT+2Updated onOctober 27, 2022 at 1:25 AM GMT+2

US officials have been forced to scale back a plan to impose a cap on Russian oil prices, following skepticism by investors and growing risk in financial markets brought on by crude volatility and central bank efforts to tame inflation.

Instead of strangling the Kremlin’s oil revenues by imposing a strict lid on prices that would have been observed by a broad “buyer’s cartel” of nations, the US and European Union are likely to settle for a more loosely policed cap at a higher price than once envisioned, with just Group of Seven nations and Australia committed to abide by it, according to people familiar with the matter.

South Korea has also privately told G-7 nations it plans to comply, the people said. G-7 officials are seeking to bring New Zealand and Norway on board as well. But it’s clear that India and China -- Russia’s most important trade partners -- will not participate, the people said.

Under an earlier iteration of the US plan, which has been spearheaded internally and externally by Treasury Secretary Janet Yellen, a price cap in the range of $40 to $60 per barrel was under consideration, with some officials eager to keep the limit as close to the lower end as possible to achieve the key objective of reducing Russia’s cash flow. 

But now, officials involved in the plans are discussing a cap at the higher end of that range, and above, even though some EU officials believe that would allow the Kremlin to continue to gain sizable revenue from sales.

More: US Eyes Russia Oil Cap Above $60 in Bid to Keep Supply Flowing

The people familiar with the matter asked not to be identified because the Russia price cap’s terms are still in development. 

“The White House and the administration are staying the course on implementing an effective, strong price cap on Russian oil in coordination with the G-7 and other partners,” a spokeswoman for the White House’s National Security Council, Adrienne Watson, said in a statement. “It is the most effective way to ensure that oil continues to flow into the market at lower prices and hit hard at Putin’s revenue to fund his war.”

In response to a request for comment, a senior Treasury official said that the US has never discussed a range for the price cap with allies. 

Russia took in an estimated $15 billion from oil sales in September, helping to fuel its war machine in Ukraine -- a flow of money that US and European leaders have sought to curb ever since Russian President Vladimir Putin ordered his invasion. But in a global market dominated by countries without democratic governments, led by Saudi Arabia, the mechanics of a price cap designed by consumers and aimed at a single producer threaten to be too complicated to achieve.

Brent crude, the global benchmark, traded around $96 a barrel Wednesday. It rose to over $139 in early March following Russia’s invasion. Extreme price gyrations this year have cut liquidity in commodity markets, which has in turn fueled further price swings.

The average delivery price for Urals crude, a major Russian export, was $63 a barrel for the past three years and $64 over five years, according to data from price reporting agency Argus Media. It has averaged about $74 this month, as of the end of last week.

The shift in US thinking on a price cap comes after Washington spent months pressuring the Europeans to amend their sanctions on Russian oil. The development is likely to add to EU frustrations, with some officials noting that they believe the US has placed more emphasis on bolstering global oil supplies and hasn’t always been as prepared as Europe to take an economic hit to punish Russia.

The Treasury Department says that setting a higher price cap could make the initiative more likely to succeed in keeping Russian oil on the market while still curbing Moscow’s revenue.

Putin has said Russia won’t sell oil to anyone who participates in the US-EU price cap, a threat US officials once regarded as hollow but that is now seen as viable.

The senior Treasury official contended that the Biden administration has always been aware that Putin could retaliate.

More: Russia Seen Floating Long-Term Oil Discounts Amid Price-Cap Push

Energy prices -- especially for oil and gasoline -- are playing an outsize role in US midterm elections on Nov. 8 that will decide control of Congress. 

President Joe Biden has sought to curb a spike in prices for US motorists that followed Russia’s invasion, including through a record release from US oil reserves and public pressure on OPEC+ and refiners.

Doubts about a Russian oil price cap emerged from the start of Yellen’s efforts, and they were amplified after the OPEC+ cartel -- which includes Russia -- on Oct. 5 announced a surprise production cut of 2 million barrels per day. Some US officials feared the move would undermine any price cap, and Biden publicly accused the Saudi government of throwing its lot in with the Kremlin.

The price cap, in its final form, is expected to be announced before Dec. 5., when EU sanctions are set to go into effect on services such as insurance, brokerage and financial assistance involved in transporting Russian oil to international customers.

Where Will the Cap Fall?

The Biden administration sees the price cap contributing to stability in markets by assuring that Russian oil can continue to flow and allowing developing nations to make purchases at a discounted level, according to the senior Treasury official. The agency has also sought to ensure that the private sector has a clear understanding of how the price cap will operate on a technical level through listening sessions and guidance issued on the Treasury Department website, the official said.

But officials involved in developing the price cap were already worried that it could backfire, producing even more volatility in global oil prices. Speaking broadly about the global economy, Yellen on Monday warned of a “dangerous and volatile environment” developing across the global economy, including a surge in energy prices and turbulence in financial markets.

She did not refer specifically to a price cap in those comments.

In such a situation, she said, “financial stability risks could materialize” in the US. Yellen was a top official at the Federal Reserve during the global financial crisis, which still haunts policymakers today.

The price-cap mechanism adopted by the EU would require third-country buyers of Russian oil to agree to pay less than the cap in order to ship and insure their cargoes with Europe-based companies. US and EU officials believe that approach would work because a key cog in cargo insurance is the International Group of P&I Clubs, which covers 90% of the world’s ships. Many of the group’s clubs are based in London with European entities or reinsurance partners, meaning they fall under EU regulations.

Companies that insure Russian oil cargoes at prices above the cap would be subject to the EU’s new sanctions. They include a ban on shipping and a provision that would ban vessels from accessing European services for all oil, regardless of origin, if a tanker transports Russian crude sold above the cap.

That clause is intended as an incentive for buyers to adhere to the cap.

However, some industry experts believe that leverage is insufficient, as Russia could access alternative ships and insurance services, as well as retaliate by declining to export to customers abiding by the cap. Exxon Mobil Corp. officials set out similar considerations to the EU in a presentation in August, according to people with knowledge of the matter.

The EU’s price-cap plan is conditioned on the G-7 adopting it. Failure by the G-7 to reach its own agreement would currently see an outright ban on Russian oil services, which the EU adopted in June, come into force.

The US has pushed for the cap in part because officials feared that the EU’s ban would lead to a spike in global oil prices.

The US had also privately discussed with allies using enforcement tools such as secondary sanctions alongside the cap, according to people familiar with talks that took place earlier this year. But US Deputy Treasury Secretary Wally Adeyemo has publicly ruled out that option, adding to skepticism that the price-cap scheme will work. 

One EU official said it was hard to see the cap working without an enforcement mechanism, not least because key buyers such as India, China and Turkey were highly unlikely to sign up for any agreement.

No decision is expected before the US elections. The EU aims to establish a price cap around Nov. 25, about 10 days before the bloc’s new sanctions kick in on services for Russian oil shipments.

https://www.bloomberg.com/news/articles/2022-10-26/biden-team-reworks-plan-for-russia-oil-price-cap-as-markets-sour

[Tomasz + 1,608]

US officials have been forced to scale back a plan to impose a cap on Russian oil prices, following skepticism by investors and growing risk in financial markets brought on by crude volatility and central bank efforts to tame inflation.

Instead of strangling the Kremlin’s oil revenues by imposing a strict lid on prices that would have been observed by a broad “buyer’s cartel” of nations, the US and European Union are likely to settle for a more loosely policed cap at a higher price than once envisioned, with just Group of Seven nations and Australia committed to abide by it, according to people familiar with the matter.

South Korea has also privately told G-7 nations it plans to comply, the people said. G-7 officials are seeking to bring New Zealand and Norway on board as well. But it’s clear that India and China -- Russia’s most important trade partners -- will not participate, the people said.

Under an earlier iteration of the US plan, which has been spearheaded internally and externally by Treasury Secretary Janet Yellen, a price cap in the range of $40 to $60 per barrel was under consideration, with some officials eager to keep the limit as close to the lower end as possible to achieve the key objective of reducing Russia’s cash flow.

But now, officials involved in the plans are discussing a cap at the higher end of that range, and above, even though some EU officials believe that would allow the Kremlin to continue to gain sizable revenue from sales.

The people familiar with the matter asked not to be identified because the Russia price cap’s terms are still in development.

“The White House and the administration are staying the course on implementing an effective, strong price cap on Russian oil in coordination with the G-7 and other partners,” a spokeswoman for the White House’s National Security Council, Adrienne Watson, said in a statement. “It is the most effective way to ensure that oil continues to flow into the market at lower prices and hit hard at Putin’s revenue to fund his war.”

In response to a request for comment, a senior Treasury official said that the US has never discussed a range for the price cap with allies.

Russia took in an estimated $15 billion from oil sales in September, helping to fuel its war machine in Ukraine -- a flow of money that US and European leaders have sought to curb ever since Russian President Vladimir Putin ordered his invasion. But in a global market dominated by countries without democratic governments, led by Saudi Arabia, the mechanics of a price cap designed by consumers and aimed at a single producer threaten to be too complicated to achieve.

Brent crude, the global benchmark, traded around $96 a barrel Wednesday. It rose to over $139 in early March following Russia’s invasion. Extreme price gyrations this year have cut liquidity in commodity markets, which has in turn fueled further price swings.

The average delivery price for Urals crude, a major Russian export, was $63 a barrel for the past three years and $64 over five years, according to data from price reporting agency Argus Media. It has averaged about $74 this month, as of the end of last week.

The shift in US thinking on a price cap comes after Washington spent months pressuring the Europeans to amend their sanctions on Russian oil. The development is likely to add to EU frustrations, with some officials noting that they believe the US has placed more emphasis on bolstering global oil supplies and hasn’t always been as prepared as Europe to take an economic hit to punish Russia.

The Treasury Department says that setting a higher price cap could make the initiative more likely to succeed in keeping Russian oil on the market while still curbing Moscow’s revenue.

Putin has said Russia won’t sell oil to anyone who participates in the US-EU price cap, a threat US officials once regarded as hollow but that is now seen as viable.

The senior Treasury official contended that the Biden administration has always been aware that Putin could retaliate.

More: Russia Seen Floating Long-Term Oil Discounts Amid Price-Cap Push

Energy prices -- especially for oil and gasoline -- are playing an outsize role in US midterm elections on Nov. 8 that will decide control of Congress.

President Joe Biden has sought to curb a spike in prices for US motorists that followed Russia’s invasion, including through a record release from US oil reserves and public pressure on OPEC+ and refiners.

Doubts about a Russian oil price cap emerged from the start of Yellen’s efforts, and they were amplified after the OPEC+ cartel -- which includes Russia -- on Oct. 5 announced a surprise production cut of 2 million barrels per day. Some US officials feared the move would undermine any price cap, and Biden publicly accused the Saudi government of throwing its lot in with the Kremlin.

More: US Officials Fret Over Russia Oil Cap Failing After OPEC Cut

The price cap, in its final form, is expected to be announced before Dec. 5., when EU sanctions are set to go into effect on services such as insurance, brokerage and financial assistance involved in transporting Russian oil to international customers.

Where Will the Cap Fall?

Urals' five-year average could point to eventual price-cap level for Russian Oil

Source: Argus Media

Price represents average of NWE and Med delivered prices

The Biden administration sees the price cap contributing to stability in markets by assuring that Russian oil can continue to flow and allowing developing nations to make purchases at a discounted level, according to the senior Treasury official. The agency has also sought to ensure that the private sector has a clear understanding of how the price cap will operate on a technical level through listening sessions and guidance issued on the Treasury Department website, the official said.

But officials involved in developing the price cap were already worried that it could backfire, producing even more volatility in global oil prices. Speaking broadly about the global economy, Yellen on Monday warned of a “dangerous and volatile environment” developing across the global economy, including a surge in energy prices and turbulence in financial markets.

She did not refer specifically to a price cap in those comments.

In such a situation, she said, “financial stability risks could materialize” in the US. Yellen was a top official at the Federal Reserve during the global financial crisis, which still haunts policymakers today.

The price-cap mechanism adopted by the EU would require third-country buyers of Russian oil to agree to pay less than the cap in order to ship and insure their cargoes with Europe-based companies. US and EU officials believe that approach would work because a key cog in cargo insurance is the International Group of P&I Clubs, which covers 90% of the world’s ships. Many of the group’s clubs are based in London with European entities or reinsurance partners, meaning they fall under EU regulations.

Companies that insure Russian oil cargoes at prices above the cap would be subject to the EU’s new sanctions. They include a ban on shipping and a provision that would ban vessels from accessing European services for all oil, regardless of origin, if a tanker transports Russian crude sold above the cap.

That clause is intended as an incentive for buyers to adhere to the cap.

However, some industry experts believe that leverage is insufficient, as Russia could access alternative ships and insurance services, as well as retaliate by declining to export to customers abiding by the cap. Exxon Mobil Corp. officials set out similar considerations to the EU in a presentation in August, according to people with knowledge of the matter.

The EU’s price-cap plan is conditioned on the G-7 adopting it. Failure by the G-7 to reach its own agreement would currently see an outright ban on Russian oil services, which the EU adopted in June, come into force.

The US has pushed for the cap in part because officials feared that the EU’s ban would lead to a spike in global oil prices.

The US had also privately discussed with allies using enforcement tools such as secondary sanctions alongside the cap, according to people familiar with talks that took place earlier this year. But US Deputy Treasury Secretary Wally Adeyemo has publicly ruled out that option, adding to skepticism that the price-cap scheme will work.

One EU official said it was hard to see the cap working without an enforcement mechanism, not least because key buyers such as India, China and Turkey were highly unlikely to sign up for any agreement.

No decision is expected before the US elections. The EU aims to establish a price cap around Nov. 25, about 10 days before the bloc’s new sanctions kick in on services for Russian oil shipments. Western officials finalizing plans for Russia oil-price cap

U.S. and Western officials are finalizing plans to impose a cap on Russian oil prices amid a warning from the World Bank that any plan will need active participation of emerging market economies to be effective.

Officials said no price range has been decided yet, however one person familiar with the process said the cap will be determined in line with the historical average of $63-64 a barrel - a level that could form a natural upper limit.

Such a level is in line with recent comments by Treasury Secretary Janet Yellen that a price cap in the $60 range would give Russia an incentive to keep producing oil.

The administration of President Joe Biden has seen the price cap as a way to cut oil revenues for Russia, a major source of its funding for its war against Ukraine, while keeping Russian oil flowing and avoiding price spikes.

The actual price will be set in coming weeks ahead of the planned Dec. 5 launch of a European embargo on Russian oil and associated restrictions on transportation and insurance of seaborne oil.

A senior Biden administration official said reports of any price range were wrong, but declined to elaborate.

U.S. officials pushed back against a report by Bloomberg News quoting unnamed sources saying they were being forced to scale back plans for the price cap, with fewer participating countries and a higher price level.

The administration has told reporters for weeks that the price cap was already bearing fruit by empowering countries to demand bigger discounts from Moscow.

Bloomberg also reported South Korea had privately told G7 nations it planned to comply and G7 officials were also trying to bring New Zealand and Norway on board.

"The White House and the administration are staying the course on implementing an effective, strong price cap on Russian oil in coordination with the G7 and other partners," a spokeswoman for the White House's National Security Council, Adrienne Watson, said in a statement to Reuters.

Yellen told reporters earlier this month the coalition pushing for the price cap included the Group of Seven, the European Union and Australia, and they were "not trying to sign up additional countries."

"For us, success is going to be not how many countries raise their hand to say 'We endorse what you're doing, we're part of the coalition.' We're not looking for that. What we want to see is that Russian oil continues to flow into the market, and that countries are using the leverage provided by the existence of this cap to bargain lower prices."

DOWNWARD PRESSURE

Western diplomats say the price cap is already giving India and other buyers of Russian oil better leverage in negotiations with Moscow, enabling them to secure good discounts.

Indonesian Finance Minister Sri Mulyani Indrawati told the Jakarta Post in an interview published on Wednesday that Yellen told her the cap would be set at a level that was just enough to create profit, but not "supernormal profit."

"If it was 60 (dollars per barrel), that would really fit with my budget. That would be nice,” Sri Mulyani told the newspaper.

The World Bank on Wednesday said the G7 oil price cap could affect the flow of oil from Russia, but was an "untested mechanism" and needed the participation of large emerging markets and developing countries to be effective.

It noted Russia has said it will not trade with countries participating in the price cap.

U.S. officials say the price cap will be policed by attestations taken from buyers in local jurisdictions.

[Tomasz + 1,608]

Short version of these 2 articles- Putin was right when he said world really become multipolar recently.

Its not really Russia against West.

Its more like most of emerging markets or Global South or Brics with China as a leader against West.

They are not really prorussian Global South is rather extremely sick and tired of last 500 years of western hegemony

Antiwesternism is much more important than anything else.

"Rules-based world order" means that the US makes the rules, and the rest of the world follows its orders.

So they simply dont buy it anymore.

Edited October 27, 2022 by Tomasz

[RichieRich216 + 454]

Russia is poised to fuck up the world if Putin is not removed! 

[Tomasz + 1,608]

31 minutes ago, RichieRich216 said:

Russia is poised to fuck up the world if Putin is not removed! 

Removed by whom? Russians decide about that not you. Its not Yeltsin era.

 

Why-the-West-loved-Yeltsin-and-hates-Putin.pdf

[RichieRich216 + 454]

Do you think he can’t be gotten to? You’re either naive or just dump.

[TailingsPond + 1,009]

28 minutes ago, RichieRich216 said:

Do you think he can’t be gotten to? You’re either naive or just dump.

Funny, when calling someone dumb ensure you spell it correctly.

[RichieRich216 + 454]

Blame SIRI all this money on every new iPhone released and it still can not auto-correct, yet it will pick up voices on television and start transcribing.