Russia set to largely circumvent new G7 oil price cap


LONDON, Oct 21 (Reuters) – Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players have told Reuters. and a US official, pointing out the limitations of the most ambitious plan yet to rein in Moscow. war income.

The Group of Seven countries agreed last month to cap Russian oil sales at a low imposed price by December 5, but were dismayed by major players in the global oil industry who feared the move would paralyzes world trade.

Months of discussions between the United States and these insurance, trading and shipping companies have allayed concerns about their exposure to sanctions, but all parties now realize that Russia can largely circumvent the plan with its own ships. and services.

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Predictions on the resilience of Russia’s oil trade and details of talks between Washington and the global oil and services industry have not previously been released.

Estimates that 80-90% of Russian oil will continue to exit the cap mechanism are not unreasonable, a US Treasury official told Reuters.

As a result, only 1 to 2 million barrels per day (bpd) of Russian exports of crude and refined products could be blocked if the country refuses to meet the cap, said the official, who declined to be named due of sensitivity. of the situation.

Russia exported over 7 million bpd in September.

This could pose financial and technical difficulties for Russia, but would also deprive the world of 1-2% of its global supply as inflation rises and a recession looms.

The United States is aware that some ships are changing their countries of origin and commercial entities are being moved beyond the G7 to escape the plan, the official added.

Russia would incur costs from having to make longer trips and being relegated to below-average insurance and funding, the official said, giving the United States optimism. Russia will be forced to sell within the price cap over time.

SHADOW FLEET

Industry and political veterans have seen the limits of a plan that at first seemed to target all of Russia’s oil trade, but could now be significantly reduced in scope.

“In theory, there is a large enough ghost fleet to continue Russian crude flows after December 5,” Andrea Olivi, global head of wet freight at commodity trading giant Trafigura, told Reuters.

“A lot of these ghost ships will be able to self-insure or they can be insured by Russian P&I,” he added, referring to protection and indemnity insurance.

JP Morgan bank sees the impact of the price cap as moderate, with Russia almost completely circumventing the ban by rounding up relatively old Chinese, Indian and its own ships – whose average age is almost two decades – according to maritime standards.

That could leave Russian exports in December reduced by just 600,000 bpd from September, the bank added.

According to Norbert Rucker, head of economics at Swiss asset manager Julius Baer, ​​not only ships, but also the services needed to maintain them and their oil cargoes, are on the move.

“The oil traders who sell Russian oil are no longer in Switzerland, Geneva or London. Instead, they come from the Middle East,” Rucker told Reuters.

“If you look at Asian buyers of oil, ships, insurance, it seems to be happening more and more out of Asia.”

A BALL AT THE FOOT?

The G7 price cap plan agreed in September was presented by the United States to industry players as a safety valve for the EU’s outright bans on Russian shipments ratified in June.

P&I services complying with EU law secure 95% of the world’s trade in oil transported by ship, which means that the EU decision could have stopped most exports from Russia.

That may have put off sanctioning countries by skyrocketing energy prices amid an already deep crisis in the cost of living as a potential global recession looms.

Figures from the insurance and shipping industry were still under threat of sanctions that could disrupt trade, even in the G7 price cap workaround. The EU ratified the price cap this month, but details on its implementation are yet to come.

The US official said the policy was tailor-made to make it easy for businesses to verify or certify that prices were sold below the cap.

The cap, the official added, is not intended to be punitive to the industry and will allow them to keep the attestations and not force them to submit them to a central registry.

This would be lax enough to allow insurers to ask buyers of Russian oil to commit in writing that sales will take place at or below the price cap for the duration of their insurance period.

An industry official familiar with the matter viewed the attestation policy as “positive” and thinks Washington now understands that insurers cannot enforce the policy themselves.

Another said that six weeks before the sanctions take effect, the insurance industry still wants more details on how the attestations work and is concerned that EU regulations still do not mention neither the process nor define their obligations.

Daniel Ahn, former chief economist of the US State Department, says countries sanctioning Russia have overstated their control of the global oil trade and that changes and clarifications have been made to their policy aimed at reducing self-harm.

“All it’s going to do is redirect the oil…and make life difficult for everybody, which is what’s happening right now anyway,” said Ahn, global member of the Woodrow Wilson International. Center for Scholars.

“It’s going to be less damaging than a complete sea import ban. They shot themselves in the foot, but now they’re trying to bandage it up a bit.”

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Additional reporting by Julia Payne Editing by Marguerita Choy

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