Protracted ceiling: G7 split over oil sanctions against Russian Federation
A split is emerging among the G7 countries on the issue of tougher sanctions against Russia's oil industry, experts believe. On February 24, the G7 plans to announce its intention to lower the price ceiling for Russian oil. However, Izvestia's interlocutors consider this initiative to be nothing more than political PR: it is unlikely that the United States will support tougher sanctions in the conditions of the dialog that has begun between Moscow and Washington. And European countries alone have no mechanisms capable of having a significant impact on the reduction of Russian oil exports. The bulk of payments for energy resources are made in dollars, not euros, and Europeans have practically no other levers of pressure on fuel buyers - for example, India and China.
Plans to tighten the Russian oil price ceiling
On February 24, the G7 countries intend to release a statement on tightening the price ceiling on Russian oil. This was reported by Bloomberg news agency with reference to the draft document. The draft statement says that the G7 countries will instruct their finance ministers to revise the price limit, which is now $60 per barrel of oil. According to the agency, the purpose of the likely new measures is to encourage Russia to "negotiate a full-format peace" over Ukraine.
The current "ceiling" on oil prices has been in effect since December 2022. It was introduced to reduce Russia's oil and gas revenues. In February 2023, a price ceiling of $100 per barrel was introduced for "light" oil products (diesel fuel and gasoline) and $45 per barrel for "dark" products (fuel oil).
It was assumed that the functioning of the mechanism would be evaluated every two months based on the market situation, and the ceiling would be set at the rate of -5% of the average market price of Russian crude oil and petroleum products, calculated on the basis of data from the International Energy Agency. In addition, after each change in the ceiling price there was to be a transition period of 90 days before it came into effect. However, the restrictions set in late 2022 and early 2023 have not changed since their introduction.
The point of the imposed sanctions was to withdraw 2.5-3 million barrels of Russian oil from the world market, which should have been used by other suppliers to increase production and exports, recalled Alexander Frolov, Deputy Director General of the Institute of National Energy.
- But these suppliers declared their technical unreadiness to replace Russia on the world market. The risk of shortages arose. And since the sanctions could not be lifted for political reasons, a system emerged that looks like an additional punishment, but in reality is a legal means of circumventing the sanctions at little financial cost to Russia," the interlocutor said.
According to InfoTEK's calculations, by the end of 2023 no more than 30% of Russian oil will be transported within the ceiling.
Why is it difficult for the G7 to tighten the price ceiling?
Today, if we act solely within the framework of the mechanism prescribed by the G7, the ceiling can be reduced by no more than 5% of the Urals market price, emphasized Ekaterina Kosareva, Managing Partner of WMT Consult. But in the current conditions it will not change much.
According to the analytical agency "NAAS-media", as of February 18, the cost of Russian Urals oil in Indian ports was estimated at $72-73 per barrel, at the ESPO terminal Kozmino in the port of Vostochny - $69-70 per barrel.
In turn, Alexander Frolov reminded that the price of different grades of Russian oil depends on two major components: the price of benchmark grades and transportation costs. Sanctions pressure affects the second component - logistics becomes more complicated.
- Therefore, we can see the price at the port of departure (FOB) decreasing, while at the port of receipt (CIF) it remains at the same level or even increases. Thus, Urals crude oil in the north-western ports of Russia trades 20% cheaper than Brent, while in the port of receipt in India the difference with the North Sea grade is reduced to 4%. And this is an indicator that generally corresponds to the pre-crisis level. The simpler the logistics, the less pronounced is the difference between FOB and CIF prices. For most grades, the difference between FOB is about 10% of Brent," Frolov notes.
According to Ekaterina Kosareva, in order to have a serious impact on Russian export supplies, the G7 needs to change the very mechanism and regulations for setting the ceiling.
- Increase the percentage from five to ten, for example. But this will take time. And that is not the most important thing. There is a serious split within the G7 itself - between the U.S. and its other members - which is a much more serious obstacle to the introduction of new restrictive measures, " the expert says.
G7 split: the US is unlikely to support new sanctions
According to experts, the introduction of additional sanctions against the domestic oil and gas sector by the United States is highly unlikely today.
According to Valery Andrianov, associate professor at the Financial University under the Government of the Russian Federation, firstly, the dialog on Ukraine has begun, and Washington will not overshadow it with new restrictions. Secondly, it makes no sense for the US to undermine and unbalance the global oil market.
- Tougher sanctions against Russia may lead to unpredictable consequences," Andrianov believes. - Purely theoretically, a sharp reduction in Russian supplies would lead to an increase in global oil prices. In the short term, such a deficit could not be compensated by shale production in the United States or other sources outside OPEC. And an increase in production in Saudi Arabia and other Middle Eastern countries would mean the collapse of the OPEC+ agreement and the beginning of a price war "all against all". That, in turn, is fraught with a collapse of oil prices and a drop in profits of American oil companies.
However, the interlocutor notes, there is a possibility that sanctions based on the new price ceiling will be imposed not by the G7 (including the US), but by the European Union. But such a development does not scare buyers much, Valery Andrianov is sure.
- The bulk of payments for energy resources are made in dollars, not euros, and the Europeans have practically no other levers of pressure, for example, on India and China. Therefore, Poland and other opponents of Russia can call for the ceiling to be lowered to $40 or $20 - this is purely political PR," the expert believes.
According to Tamara Safonova, Director General of "NAAS-Media", today the EU countries, in fact, are trying to make another destructive move against the background of the development of the diplomatic negotiation process between the U.S. and Russia.
- The statement of the European establishment that the new ceiling "should push Moscow to negotiate peace" contradicts the very essence of the ongoing negotiation process, in which the EU countries do not participate," she said.
According to Safonova, the price ceiling did not work, the EU countries did not become beneficiaries of the imposed restrictions, and they did not achieve their goals of introducing non-market pricing mechanisms.
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