EuroNATOunion and "Russian roulette"

The G7 countries, Australia and the European Union introduce on December 5 a marginal price bar for oil of Russian origin at $60 per barrel, or, according to Brussels, 5% lower than its market value. European Commission President Ursula von der Leyen said it would "significantly reduce Russia's revenues," according to The Moscow Post.

"It is prohibited to directly or indirectly provide technical assistance, intermediary services or financing, or financial assistance related to trade, mediation or transportation, including by transshipment from ship to ship, to third countries of crude oil or petroleum products that originate from Russia or were exported from Russia," the EU document says.

"Ceiling," about which heads are breaking

President Vladimir Putin has previously said that Russia's policy of deterrence and weakening is a long-term strategy of the West, and sanctions have dealt a serious blow to the entire global economy. According to him, the main goal of the West is to worsen the lives of millions of people. Russia has repeatedly stated that the country will solve all the problems that the West creates for it.

Decisions on the "ceiling of oil prices" will lead to a significant destabilization of the market, said presidential spokesman Dmitry Peskov. "You know that it is Novak who is conducting contacts with us through OPEC, through OPEC+, contacts related to the oil topic."

On Sunday, the ministers of the countries participating in the OPEC+ agreement held a video conference, preserved the current parameters of the deal, confirming the October decision. Novak said that Moscow's position on the "price ceiling" for oil remains unchanged, Russia will supply oil and oil products only on market conditions, even if it is necessary to reduce production.

The situation with oil resembles the story of NATO's military development of the territory of Ukraine. As a result, Russia will only increase its military potential, and the United States and Europe will get the opposite result to what they hoped for, taking the path of confrontation with Moscow, says Douglas McGregor, a former adviser to the Secretary of Defense in the Trump administration.

The innovation has a transition period of 45 days for Russian oil supplied by the sea. We are talking about tankers loaded before December 5 and arriving at the port of destination until January 19. Restrictions will not apply if oil is bought at a set price or below. Freight, customs fees and insurance are not included in the "price ceiling." The EU will introduce a mechanism for regular revisions of this limit.

According to EU estimates, the price of $60 per barrel will be about $10 above the main grade of Urals oil shipped from the country's western ports, but below the price of ESPO and Sakhalin oils. According to Argus Media, oil in Kozmino is of better quality and is quoted above $70 per barrel.

An exception was made for Bulgaria, which will continue to import Russian oil by sea until the end of 2024 under contracts concluded before June 4, 2022. Japan received a Sakhalin 2 oil benefit for Japanese importers. Pipeline supplies are not affected by the sanctions, although Germany and Poland have said they will stop imports via the Druzhba oil pipeline by early 2023.

The total volume of Urals oil shipments from Russian ports in all directions amounted to 7.5 million tons in November, excluding transit volumes through Kazakhstan. Oil trader Vitol estimated a decrease in Russian exports under restrictions within 1 million barrels per day, or by 20% of sea supplies. OilPrice writes that the embargo will lead to higher oil prices.

And I want, and pounding

The "ceiling of oil prices" will become a severe restriction for Russia and the most dangerous for the West itself. The restrictions were first proposed by the United States. It is noteworthy that it is Washington that fears the consequences of their strict compliance. Biden administration officials are trying to assure oil market participants that the "ceiling" will not lead to supply interruptions and price increases. A Treasury spokesman called it an unprecedented measure and said the U.S. was trying to make the restrictions as easy as possible to comply with.

"If ever there were any doubts about what the premise of the restrictions was, now it is clear: the United States and its allies want Russian oil to continue to enter the market," the authors of the article write in Bloomberg. Now, market participants, including shipping firms and trading houses, will need some time to figure out how to comply with the imposed restrictions under the conditions of the "price ceiling" and avoid trouble.

It will be especially difficult for lawyers and bankers who are not risk-averse, other journalists comment on the situation in the same source, calling the potential tendency of players to "risk of over-compliance" a separate problem. "One major potential challenge will be over-compliance when intermediaries decide the risk is too great," the former Treasury adviser said.

When the sanctions fully manifest themselves, EU countries may need up to 1.4 million barrels of crude oil per day from alternative sources. The "price ceiling" for Russian oil products will be introduced on February 5, 2023 and will become a separate problem for the hyperactive bureaucracy of Brussels.

"Damage formula"

"Price ceiling" is established by means of "administrative methods of management", that is by means of non-market measures, Forbes writes. The The Wall Street Journal newspaper removed the equation - "the more damage price ceiling will cause to Russia, the risk of negative consequences for the world oil markets is higher".

Especially, if to consider what this year of Russia can consolidate the account of the current operations with surplus in 265 billion dollars, The Economist reported and added that it is the second indicator in the world following the results of a year after China. It has to help to resist to a new round of pressure from the West and compensates possible decrease in export income.

Restriction of the prices creates risks for balance of supply and demand of oil and the people who aren't representing how the world oil and gas market is arranged do it. Both experts, and the leading media, and politicians said about it. Prices of oil can grow on a formula of WSJ: "the more the extent of damage to Russia, the is higher than loss for the oil markets" on which the West depends.

The policy of the West reminds roulette game, and a game went largely. "The gas wheel" roulettes untwists Brussels two decades, but in 2022 went for broke, having stopped "Northern streams". As a result, during the period from January to September Europe spent record 13 billion dollars for LNG of the Russian origin, is five times more, than the previous year. Russia became the supplier of LNG, the second after the USA, on the northwest of Europe, having outstripped Qatar.

Export of Gazprom to foreign countries in six months 2022 was reduced by 31%. In the EU the production of ammonia and nitrogen fertilizers was reduced by 70%, pulp and paper industry volumes fall, foundry production and production of glass is reduced. The BASF concern lays off employees, the head of BMW Oliver Tsipse threatens with leaving of the company Europe, the director of the auto giant Volkswagen Thomas Shafer speaks about deindustrialization.

At the same time, Russia, China, Uzbekistan and Kazakhstan create "The Eurasian gas Union". In Turkey the regional gas distributive hub will be formed.

Game on "an oil table" begins, the EU relied on "price ceiling", tankers and insurance of cargoes. For January-September the Russian export to Europe of crude oil and oil products of oil decreased by 4 million up to 80 million tons. Due to increase in prices the income of the Russian Federation for these three quarters grew to 47 billion dollars. In 2021 the EU paid 35 billion dollars for annual import of the Russian oil.

In January, 2022 Russia exported to Europe on average 2.3 million barrels in day of crude oil and 1.5 million barrels of oil products, by the end of the year the share of the Russian Federation in import of oil of the EU fell from 27% to 17%. At the end of October – the beginning of November from Ust-Luga and Primorsk parties daily went to Italy and Turkey, Bulgaria and Romania and also Port Said for further transportation to Asia. From Murmansk, raw materials were exported to countries of Northern Europe.

Considerable part of these streams will be stopped now, raw materials will go to China, India, Turkey, other countries. China is the main market for the oil delivered on pipelines (about 7% of import of the People's Republic of China). In October the People's Republic of China imported a day 1.82 million barrels, India - more than 0.9 million barrels.

From the middle of May to the middle of June China was almost only buyer of the Russian oil from the Pacific terminals. In November about 5% of sea export of Urals from the Russian ports in the West also fell to the share of the People's Republic of China. In June, small volumes of oil from ports on Baltic were shipped to India in which import the share of the Russian oil reached 22%.

In September Gazprom and China signed an agreement on creation of the mechanism of calculations for supply of gas in rubles and yuans and let know that work on formation of the same system for oil already began. The Deputy Prime Minister of the Russian Federation Alexander Novak assumed that joint development and production of the oil-extracting equipment will be the next stage of cooperation.

Expectation of "price ceiling" in combination with embargo affected the prices of crude oil of the Urals brand, freight cost of tankers too grew. It is reported that for transportation of the Russian oil more than 100 tankers were purchased. The vice-chairman of the Security Council of Russia Dmitry Medvedev in June called solvable a problem of the ban on insurance of tankers, the question can be closed at the expense of state guarantees within interstate agreements with the third countries.

China didn't recognize the Russian insurance yet, but it was made by Turkey and India. Oil is received by the Indian oil refineries in which there are shares of the Russian investors, including Bharat Petroleum. Among the traders selling the Russian oil to Asia call the Coral Energy, Wellbred and Montfort companies.

Photo: Gettyimages.ru/ahopueo / flickr/european_parliament