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Russia Could Largely Avoid The Oil Price Cap

Russia could largely evade the planned price cap on its oil because it will likely have access to enough own tankers and transport and insurance services to ship its oil, a U.S. Treasury official and industry representatives have told Reuters.  

There have been estimates that Russia could continue to ship 80-90% of its oil outside the price cap regime, and those estimates “are not unreasonable,” the unnamed U.S. official told Reuters.     

Therefore, only up to 2 million bpd of Russian crude and refined petroleum exports may have to be shut in from early December, when the price cap mechanism is planned to kick in, according to the official.

Russia exported 7.5 million bpd of crude and refined products in September, per the International Energy Agency (IEA).

“In theory there is a big enough shadow fleet to continue Russian crude flows after Dec. 5,” Andrea Olivi, Global Head Wet Freight/Oil Chartering at trading giant Trafigura told Reuters on Friday.

Last month, the G7 group of the most industrialized nations agreed to finalize and implement a price cap on Russian oil, aiming to reduce Vladimir Putin’s oil revenues for his war chest. The G7 will ban maritime transportation services for Russian oil unless the products are purchased at or below a certain price cap.

European Union ambassadors also endorsed the price cap after reaching an agreement earlier this month to impose a new package of sanctions on Russia, including banning maritime transportation for Russian oil to third-party countries unless the oil is sold below or at a certain price cap.

Many analysts and experts doubt that the price cap would serve its dual purpose of cutting revenues for Putin while keeping Russian oil flowing because top importers China and India haven’t signed onto the price cap, and because Putin could simply make good on his promise to halt all energy supply—including crude, fuels, natural gas, and coal—to the countries that sign up to cap the price of Russian oil.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on October 21 2022 said:
    Russia not only has numerous and keen buyers for its crude oil and petroleum products but it also has access to enough oil tankers and insurance services thus enabling it to avoid the G7 oil price cap on its crude exports and continue to sell the bulk of its exports.

    If the G7 leaders and their advisors just paused and thought carefully, they would have reached the simple conclusions that Russia would kill the cap by halting immediately its exports to countries implementing it and that a price cap in a tight global oil market underpinned by robust demand and a shrinking global spare production capacity including OPEC+’s can never succeed.

    Unfortunately the G7 leaders always let their enmity towards Russia cloud their vision hence the hare-brained idea of a price cap.

    Moreover, the cap will lead to oil prices soaring higher than current levels with Brent crude hitting $100-$110 a barrel before the end of the year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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