[Text/Observer Network Li Zexi Editor/Zhang Guangkai]
On December 5, Western countries also made two "big moves": the ban on Russian oil imported by EU on maritime, which officially came into effect on the same day; on the same day, the EU, G7 Group and Australia prohibited the provision of insurance and shipping services for Russian oil prices exceeding US$60 per barrel.
" Wall Street Journal " analyzed that the purpose of these two actions is to weaken Russia's military capabilities in the Russian-Ukrainian conflict, while maintaining the global crude oil price stable. However, while these sanctions are targeting Russia, the influence of oil supply and price is global. Is Russia really hit, or is it that the EU "shots itself in the foot"? Can Asian countries that have previously significantly increased Russian oil imports bypass new obstacles? Finally, is this series of "sniper wars" against Russian oil "completely meaningless"?
In fact, due to the numerous internal conflicts within the EU, the ban not only came late, but also left a lot of room for Russia to move. Since the beginning of this year, EU countries have spent more money to buy oil from Russia than last year; even if the ban is implemented, many important countries, including Japan and India, can continue to buy oil from Russia.
However, the EU ban has limited effect, which does not mean that Russia can be happy. This year, the price of oil exports to Russia in Europe has long been lower than US$60, which is far from meeting Russia's fiscal balance requirements.
More importantly, affected by the expectations of a slowdown in Europe and the United States next year, international oil prices have fallen back to last year's level, and it is not even ruled out that they will fall below the $60 restricted price in the future. The European and American "price limit alliance" said that it will conduct a review every two months to ensure that the price limit is at least 5% lower than the market price.
BrentOil price (Photo source: TradingEconomics)
Russia still needs to think of countermeasures for potentially falling oil prices.
The EU ban has come late, and Russia has made a lot of money.
The EU is not a solid piece of paper, it is already well-known "common sense". Therefore, many analysts and media reports once believed that neither of these measures could be passed. Facts have proved that the EU is still able to accomplish something, despite the repeated twists and turns of the journey.
In the first half of this year, when the EU discussed stopping imports of Russian oil, some Eastern European countries led by Hungary expressed strong opposition, which had caused plans to be "close to miscarriage". On May 30, the EU made concessions to countries such as Hungary that rely on Russian oil, limiting the scope of sanctions to oil transported by sea and not covering oil supplied through pipelines.
At that time, European Council Chairman Michel posted on Twitter that the move "will immediately cover two-thirds of the European Union's oil imported from Russia." European Commission President Von der Leyen tweeted that the move will cut the volume of oil imported by the EU from Russia by 90% by the end of this year.
data shows that the EU imports about 2.1 million barrels of oil from Russia every day, of which about 200,000 barrels of oil flow to Hungary, Czech and Slovakia . Only these three countries within the EU do not plan to stop Russian oil imports. According to Bloomberg, in the four weeks before the outbreak of the Russian-Ukrainian conflict this year, the EU's daily imports have actually dropped to 1.46 million barrels per day, and in the four weeks before the oil ban, it has dropped to 1.07 million barrels per day, and by the end of November, it has dropped to 470,000 barrels per day. Compared with the original 2.1 million barrels of oil, the EU has now cut Russian oil imports by 78%. It seems that it is still possible to cut the oil ban after the full effect is fully implemented.
Russia's daily offshore oil exports (million barrels): Nordic (blue) and southern Europe (grey) decrease (Photo source: Bloomberg)
S&P Global data shows that the United States and Norway have the biggest gains due to changes in the laws of oil trade, and the two countries now account for 25% of EU oil imports. In addition, oil exporters from Canada, Middle East , Africa and other places have also been able to successfully "find bargains", and oil exports to Europe have all increased. The total EU oil imports have fluctuated greatly and irregularly over the past year, and there is no continuous upward or downward trend.
Even so, due to the high oil prices, the EU still gave Russia a lot of money, even far exceeding previous years. According to data collected by the European Center for Energy and Clean Air Research (CREA), as of 18:00 on December 8, Beijing time, the EU has purchased approximately 68 billion euros (about 500 billion yuan) of Russian oil since the outbreak of the Russian-Ukrainian conflict, and only 50 billion euros in the whole year of 2021. CREA said that before the oil ban is fully implemented, Germany, Italy and other countries chose to stock up on a large scale during the period when the oil prices were at its highest, making Russia "making a fortune."
Russia's fossil fuel export profit (Purple is oil): EU (Part 1) and the world (Part 2) (Photo source: CREA)
Converted to rubles, Russia's profit this year is even higher, and it is likely to set a historical record.
Asian countries can still buy, but Russia wants to "free shipping"
Russia's oil ban is about to come into effect, which has indeed led to a sharp decline in Russia's energy exports to the EU, and has basically fallen back to the level before the outbreak of the Russian-Ukrainian conflict. However, as Russia diversifies its oil export targets, while Europe's imports of Russian oil are declining, Russia's oil export profits are still far higher than in the past. Asia is the most prominently increasing imports, which now accounts for 70% of Russia's oil exports. Before the outbreak of the Russian-Ukrainian conflict, Russia exported oil to China through the China-Kazakhstan oil pipeline, the East Siberia - Pacific oil pipeline and the Nakhodka port, with an average daily export volume between 600,000 barrels and 800,000 barrels. As Europe reduces its oil purchases from Russia, Russia is trying to transport more oil eastward, but due to the relatively limited infrastructure between the two countries, China's oil procurement is more often "long-term large orders" and other factors. Imports have only slightly increased to about 1 million barrels per day; however, this has set a record for China's purchase of Russian oil. What truly replaces Europe is Türkiye and India. The two countries hardly imported oil from Russia before the outbreak of the Russian-Ukrainian conflict. Between March and April, Europe lowered its oil imports and "released" hundreds of thousands of barrels of "idle" oil every day, while the oil prices continued to rise. For India and Türkiye, it is obvious what to do. In November, the two countries imported more than 1.3 million barrels of Russian oil per day, and India alone often exceeded China's buying volume.
Russia's daily offshore oil exports (million barrels): China (black) remained flat, India (pink) and Turkey (blue) increased (Photo source: Bloomberg)
Europe "abandoned" to purchase Russian maritime oil, and most of the release was Russia's Baltic oil exports. The pipeline exports nearly 1.5 million barrels of oil per day, accounting for most of the 2.1 million barrels of oil per day imported by the EU.
However, if we want to suddenly change the export direction and change the trade pattern, it will mean higher oil prices for oil importers, and it will not have no negative impact on Russia, which exports oil. According to Bloomberg data, tanker freight from the Baltic Sea to India has risen from $10 a barrel in the past to around $20 a barrel.
Kpler data shows that most of the oil imported by India comes from Russia's Baltic ports (Photo source: Zhejiang Securities Research Institute)
In order to ensure that the oil it exports is competitive, Russia has to "eat" the extra freight itself. Since March, the Ural oil price exported by Russia to European ports has continued to be sluggish, generally about US$20 lower than the price of Brent crude oil .
Ural oil (green) and Brent oil (blue) price trend (Photo source: TradingEconomics)
When Western countries are asking other countries not to increase trade with Russia everywhere, Turkey and India are "courageous" to stand up and "help" Russia. This part may be related to the relatively complex and subtle relationship between the two countries and the West.
Turkey, which is located in NATO , has not won the favor of the EU for many years. In recent years, it has gradually moved away from Western countries. It often "strikes" Western governments in a high-profile manner, opposes the Western geopolitical agenda, or "be with" the Western enemies.However, although Turkey has not directly participated in any sanctions since the outbreak of the Russian-Ukraine conflict, it has received positive reviews from Western countries, including selling weapons to Ukraine, supporting negotiations between Russia and Ukraine, and helping to reach an Black Sea food export agreement. Some Western critics believe that Türkiye's strategic importance has been well demonstrated this year.
India has long been considered friendly with Russia. In addition to making large-scale purchases of Russian oil this year, it has also refused to condemn Russia many times. However, many of the US strategic security white papers regard India as a strategic partner to "contain China", and some American companies are also beginning to transfer some of the production capacity of from China to India. The United States has repeatedly invited India to participate in a series of Asia-Pacific initiatives led by it, but India has generally maintained a relatively "waiting and watching" attitude.
On December 5, when the EU's "oil ban" and the West's "price limit order" came into effect, Indian Foreign Minister Subrahmanyam Jaishankar met with the German Foreign Minister and later told the media that what Europe wants is their "own power", but India should not be asked to give up its energy interests. He said India will continue to buy Russian oil.
The United States seems to care about India's position. US Treasury Secretary Yellen said on November 11 that as long as India does not use relevant Western services, India can buy Russian oil at any price. In addition, she also said that the existence of the "price limit order" will enhance the bargaining power in India, China, Africa and other places, compress Russia's profit margins, and the United States "happy to see it happen."
may continue to limit prices in the future, as low as US$20?
The EU, Australia and G7 countries formed the so-called "price limit alliance" and jointly announced the "price limit US$60 per barrel of oil" on December 2. In fact, this directive does not directly prohibit Russia from selling oil at a price of $60 per barrel, but requires companies participating in the "price limit alliance" to not provide any investment, insurance and shipping services for oil above that price; among them, no insurance services means that the oil will not be transported because it means that the tanker will be in a "naked run". In case of any accident, investors may lose all their money, and governments all have insurance requirements for tankers.
Russian Far East Nakhodka Port
"Price Limit Alliance" controls most of the world's tankers and shipping insurance companies, such as the shipping power Greece has nearly 1/3 of the world's tankers; according to S&P Global, Greece has tankers transporting about 50% of Russian oil. The London-based International Shipowner Mutual Insurance Association Group (IGPI) provides shipping insurance for approximately 90% of the world's ship tonnage.
Although this directive was implemented on December 5, the "Price Limit Alliance" still allows oil loaded before that day to be freely transported out of Russia, providing a total of 45 days of transportation window as of January 19, 2023.
Ships involved in the transportation of Russian oil will not be allowed to provide shipping services in the "Price Limit Alliance" countries within 90 days after the event.
In addition, the "Price Limit Alliance" also stated that it will conduct a review every two months to ensure that the upper limit price is at least 5% below the market price.
Japan, as a member of the G7 Group, also participated in the "price limit", but received a special exemption: they can continue to freely import oil from the Russian Far East Sakhalin No. 2 oil and gas project. The Japanese government said this is taking into account the country's "energy stability." Japan's Mitsui invested 12.5% of the project and Mitsubishi invested 10%.
At the beginning, the EU had tried to completely ban all services for Russian oil transportation, and even a "price cap" was not established. However, according to media reports, industry insiders widely believe that this plan is too radical, and it also causes concerns among some countries, including the United States. As oil prices rise, completely restricting Russian oil exports will add fuel to the fire, but setting a price ceiling will "kill two birds with one stone." The EU has launched a long road to internal negotiations. At the beginning of
, the upper limit is set at US$65 to US$70 per barrel. This caused dissatisfaction from both sides.On one side are Greece and Malta , they don't want the cap level to be below $70 a barrel to protect the huge shipping industry in the country. On the other hand, some Eastern European countries led by Poland and . They believe that the upper limit should be pushed below the market price to ensure that Russia is affected by sanctions, and even once proposed an upper limit of US$20 to 30 per barrel. Hungary, which often opposes the EU agenda, did not oppose the tune because the Russian oil it imports relies on land transportation.
As Ural oil prices fell sharply in November, even below US$60 per barrel, the thinking of Poland and other countries gradually gained the upper hand. However, Poland itself is also trying to further compress the upper limit price, while trying to ensure that it can be further adjusted in the future based on market conditions. After the EU agreed to establish the mechanism, Poland expressed support and the "price limit order" was finally passed unanimously.
In fact, according to the energy price tracking platform Argus Media, the actual oil price sold in Primorsk, Russia's major European oil export port, had fallen below $50 per barrel before the "price limit order" was announced. (Note: The difference between the above Ural oil price and this price is due to the fact that the former is the CFD and OTC contract, which can be directly compared with the Brent contract price, rather than the actual selling price at a certain port on the same day).
Real-time oil prices of Primorsk ports (black) and Nakhodka ports (Photo source: Bloomberg)
However, at the Nakhodka ports in the Russian Far East (without direct relationship with Sakhalin), the price on the day was still higher than US$70 per barrel. As the end of the East Siberia-Pacific oil pipeline, the port's export volume is about 300,000 barrels of oil per day, with the vast majority being exported to China.
Chinese, Indian and Turkish buy Russian oil, and still face insurance troubles
Russia is trying to replace its dependence on Occupy oil transportation-related services. According to previous reports from foreign media, Russia's fourth largest insurance company, "Ingosstrakh", will play a "key role" in Russia's export of oil to India and China; currently, "Ingosstrakh" has representative offices in China and India, providing insurance services for more than 2,000 search ships. Foreign media also analyzed that the Russian government may also directly intervene and provide the ultimate guarantee .
Russian Deputy Minister of Transport Alexander Poshivay said on November 29 during the 4th China-Russia Energy Business Forum that Russian ships that are now rejected by Western companies are insured with Russian insurance companies and have reinsured at Russian national reinsurance companies. Poshivay said Türkiye recognized insurance provided by Russian companies, and China and India recognized most of the insurance; none of these three countries confirmed what Poshivay described.
Russia is also trying to build its own tanker fleet. According to statistics from the energy research institute "Rystad", Russia has purchased at least 103 "most of them are 12-15-year-old and older" oil tankers this year from Venezuela , Iran and other places, and is believed to have only a few years of remaining operating years. However, "Rystad" estimates that Russia still needs 60 to 70 oil tankers to maintain its current oil export scale.
Although Russia's oil export price from European ports is less than US$60 per barrel and can still obtain Western investment, insurance and shipping services, Russia is immediately affected by the "price limit order". Turkey began to require all tankers passing through its territorial waters (i.e. all tankers entering and leaving the Black Sea) to provide letters to prove its insurance "all situations".
On December 6, oil tankers waiting for permission to pass along the Black Sea coast of Türkiye
Türkiye said that this move has nothing to do with the "price limit order". However, the statement issued by the International Shipowner Mutual Insurance Association Group stated that the situation "derived from a price limit order", saying that Turkey's requirements "are far beyond conventional requirements" and would increase the risk that its members are considered to be violating Western sanctions, so they would refuse to provide relevant proof. As of December 7, more than 20 tankers were stranded because they were unable to provide relevant certificates in time, most of them were actually transporting Kazakhstan oil, which was not affected by the "price limit order". At present, some tankers have "cleared" after providing the "Ingosstrakh" insurance certificate.The situation of
has caused people to wonder whether countries around the Baltic Sea will also introduce similar policies, thereby further increasing the risks and costs of Russia's oil transportation.
Russia can’t buy what it wants even if it has money?
The cost of Russian production and transportation of oil is unfair, some speculations are as low as $10 per barrel, and some speculations are as high as $44 per barrel. However, according to S&P Global's estimates at the end of 2021, if the Russian government wants to maintain its fiscal surplus, it needs to sell oil per barrel at $69. Considering that the goal of the "price limit order" is to damage Russia's finances on the one hand, and on the other hand, it is to hope that Russia will still be willing to export oil instead of stopping production, Western countries currently seem to have roughly achieved these two goals.
The Russian government has previously threatened not to trade at a loss and may reduce production and stop production. However, Russian Foreign Minister Lavrov said on December 1 that Russia "does not care" about the price limit order price and "will negotiate directly with our partners." At present, Russia and OPEC have not announced plans to reduce further production, but industry insiders have analyzed that if oil prices fall further, the possibility of production cuts will be very high.
Currently, Brent and WTI oil prices have both fallen below $80 per barrel, lower than the price at the end of 2021. As the downward pressure on global economy continues, perhaps global oil prices will fall to the current "price limit order". John Kilduff, founding partner of New York Energy hedge fund Again Capital, said on November 28 that the current trend of WTI oil prices "goes below $60 per barrel."
A few analysts believe that all the actions of the West against Russian oil exports are actually meaningless. Economist Matthew C. Klein and economic critic Noah Smith have successively issued documents this year saying that restricting Russian oil exports will cause similar losses to all parties and are of little significance to combating Russia's combat capabilities, because the restrictions on exports to Russia that the West has long implemented are more directly hitting Russia's arms and industrial production capacity, and "Russia cannot buy what it wants even if it has money."
It is reported that Russian hypersonic ballistic missiles have almost stopped due to the lack of semiconductors required during the manufacturing process; due to the lack of components, many machinery factories, including factories that produce surface-to-air missiles, have also been closed and stopped production.
Looking to the future, the "Price Limit Alliance" also announced that it will implement a similar price limit order for other fossil products exported by Russia from February 5 next year, but the specific price has not yet been announced. The EU is also expected to ban the import of refined oil products at that time; before the Russian-Ukraine war, the EU imported about 1.2 million barrels of refined oil products per day. After
solved the oil price upper limit, the EU began to gnaw a "hard bone": the natural gas price upper limit. Although the total amount of Russian natural gas and oil imported by the EU is relatively close, the EU lacks facilities for shipping natural gas, and construction has begun in large quantities when the conflict between Russia and Ukraine broke out. Germany, the largest economy in the EU, relies especially on Russian natural gas. According to Reuters on December 6, the EU is considering the Czech Republic's proposed natural gas price ceiling of 0.22 euros per degree, which is far higher than the same day's 0.14 euros per degree, but some countries led by Germany completely opposed the setting of any upper limit.
