Russia no longer wants to supply oil to the West. How would we feel about this at the pump? Maybe not that much – not now anyway. the morning Explain.
1. What did Russia decide?
After the gas tap, the oil tap will also be closed (partially). On Tuesday, Russian President Vladimir Putin banned the sale of oil and petroleum products such as gasoline and diesel to all countries that imposed price ceilings on Russian oil. The ban also applies to all merchants who cooperate with the maximum price imposed by the West since this month.
The crude oil ban will take effect on February 1 and will remain in place until at least July. For oil products such as gasoline or diesel, Russia has not yet determined when the ban will take effect. In any case, Putin has built an escape route: his new decree includes a clause giving him the opportunity to do whatever he wants in “special cases.”
2. Why is Russia doing this?
In short, it is Putin’s long-awaited response to Western oil sanctions.
After arduous negotiations, the European Union, the Western Group of Seven countries and Australia have officially set the maximum price for Russian oil since early December. This maximum price should prevent the Kremlin from filling its coffers with the help of oil revenues. Russia currently earns about 15 billion euros per month from oil exports.
In concrete terms, the new price cap means that only oil that sells at $60 a barrel or less can be supplied. If Russian oil is traded at a higher price, Western companies such as shipping companies and insurance companies are not allowed to participate in its transportation. As a result, the price cap has global ramifications, including in countries like China and India. The oil market is almost entirely supported by insurers from the West.
Putin has long said that Russia will stop doing business with anyone who imposes or imposes “stupid” oil sanctions. In the run-up to the introduction of the price cap, Russia – according to reports from the British Business Journal, among others Financial Times – Established its own “shadow fleet” of more than 100 oil tankers. A fleet that can be used for export.
3. How will this affect the price of oil?
Russia is the second largest oil exporter in the world. Only Saudi Arabia is the best. In principle, every decision Putin makes on oil matters. However, the consequences of his ban on sales will be less than expected, according to estimates by energy experts. The reason is that he cannot back up his words and turn off the oil tap once the price cap comes into effect. (All month long, the price of Russian oil was below 60 euros per barrel.)
“Putin is very interested in keeping his oil business going,” says Dutchman Giles van den Bokel, now an energy specialist at The Hague Center for Strategic Studies, after working at Shell. As the West scales back its trade with Russia, countries like China, India and Turkey continue to eagerly buy. India and Turkey have more than doubled their imports in recent months. And Putin desperately needs this income to pay for his war in Ukraine.”
Perhaps that is why the decree on the prohibition of sales already contains a “special clause”. This appears to be designed for China and India, among other countries. And as long as Russian oil flows to Asia, this is good news for us, the West, too. Asia needs fewer barrels of oil than the Middle East. Drums of oil that could then go to the West. Unlike the gas market which depends on the existence of pipelines, the oil market is an international market. Oil can be transported quickly and “cheaply” across the world’s oceans.
In an opinion article in the American Business Journal The Wall Street Journal “We are currently witnessing the global oil market – which emerged after the fall of communism – split into two geopolitical blocs,” says renowned energy specialist Daniel Yergin (Standard & Poor’s Global).
By the way: even if he wanted to, the conditions are still not good for Putin to put the whole world in front of the “oil bloc”. There is a little tension around this question. Due to the impending global recession and the Corona crisis in China, the global demand for oil is limited.
The current conditions are expected to persist until mid-2023. Only then will the price go up, driven by the expected economic recovery of China,” says van den Bokel.
4. How will this feel at the pump?
Since petrol and diesel prices largely follow the global oil price, a sharp rise does not seem imminent. After the historic peak this spring, when prices at the pump exceeded €2 per liter of fuel, the pressure is now somewhat off the boiler. The current prices are high, but they are no longer extraordinarily high.
“What Europe decides later, in February, will be important for fuel prices,” van den Bokel says. In principle, an import ban from the European Union will apply to Russian diesel. Will Europe continue to do so? Will it concern only Russian diesel, or diesel that has been refined with the help of Russian oil in India, for example? That would be fun. In one case, a lot of Russian oil will end up in Europe through a detour. On the other hand, pressure may increase on our market.”
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