India is shipping 89,000 barrels of gasoline and diesel to the U.S. daily
The European Union finally agreed last week on a price cap of US$100 per barrel on Russian products that trade at a premium to crude, principally diesel, and US$45 per barrel for products that trade at a discount, such as fuel oil and naphtha. The price cap went effective on Sunday, Feb. 5.
The new price cap follows a US$60 per barrel cap on Russian crude that G7 countries and its EU allies imposed on Dec. 5.
As per the agreement made by the ambassadors of the 27 EU countries, there will be a 55-day transition period for seaborne Russian oil products bought and loaded before Sunday. This is a bit longer than the 45-day wind-down period for Russian crude oil that became effective on Dec. 5.
There is an ongoing debate as to whether the price cap on Russian crude exports was hurting Moscow enough. Poland and the Baltic states Latvia, Lithuania and Estonia are pushing for a review of the crude oil price cap to occur now instead of as planned in mid-March, according to Reuters, quoting diplomats. They also wanted a lower price cap to curb Russia’s revenues from fuel.
The EU, however, has only agreed to review the price cap level on Russian crude exports on a regular basis to ensure that it remains at least five per cent below the average market price.
Markets continue to be divided on the effectiveness of the caps on Russia’s crude and fuel export earnings.
The new cap on products will build on the crude oil cap set in December and further limit Russian oil revenues while keeping global energy markets supplied, insisted U.S. Treasury Secretary Janet Yellen. “The caps we have just set will now serve a critical role in our global coalition’s work to degrade Russia’s ability to prosecute its illegal war,” Yellen said in a statement after the agreement was released. Yellen is regarded as the architect of the price cap mechanism on Russian crude exports.
Moscow’s monthly budget revenues from oil and gas – courtesy of the sanctions on Russian exports – fell in January to their lowest level since August 2020, Russia’s Finance Ministry data showed on Friday.
But Russia is not ready to give up. To cope with the EU embargo, price cap and lack of tankers, Russia has plans to boost diesel exports in February, data from traders and Refinitiv showed. Last week, the International Monetary Fund also raised its 2023 growth projection for Russia by 2.6 percentage points, citing “fairly high” export revenue last year and strong fiscal stimulus from Moscow.
Matt Smith, lead oil analyst with Kpler, told Insider’s Phil Rosen that the price cap on Russian fuel exports “is going to be inconsequential,” adding that Russia is ‘going to play out in a very similar way to the December sanctions, in that Russian volumes are not going to drop off materially by any means, but instead (would) be rerouted elsewhere.’
Washington disagrees with that assessment. According to Reuters, a senior U.S. Treasury official told reporters that, while Washington was mindful of contrary views, it remained convinced that the price caps were “changing the trajectory” of Russia’s budget because petroleum was one of the primary sources of its revenues.
Furthermore, Russian oil is reaching U.S. shores. New York is purchasing around 89,000 barrels of gasoline and diesel from India daily. That’s the most fuel New York has purchased from the nation in nearly four years, Bloomberg reported, and that fuel is likely being made using banned Russian oil. India has become a top buyer of Russian crude amid western sanctions.
So, despite all the ‘sanctions’ rhetoric, Russian oil is not being sold much below the market levels, cushioning it to carry out its war on Ukraine – at least for the time being.
If the sanctions are to really bite Moscow, the U.S. will need to plug the Indian route too.
By Rashid Husain Syed
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.