Western sanctions are starting to hit Russia where it hurts the most: its energy exports. Hungary’s Viktor Orban has slowed progress.
However, for energy sanctions to work, they will need to be conscientiously designed to harm Russia more than they harm Western states. jeopardize domestic support, but decrease the dollars and euros that enter Russia. In the future, the EU will concentrate its collective efforts on a more ambitious approach: partnering with the US. The U. S. and other allies to impose a global regime, subsidized through the risk of secondary sanctions. , to limit the value of Russian oil and reduce the Kremlin’s revenues.
Previous rounds of sanctions against Moscow have limited investment and generation for Russia’s energy sector, targeting the country’s refineries and its liquefied herbal fuel infrastructure structure. Canada, the United Kingdom, and the United States also banned imports of Russian energy, but this had limited effect. they have an effect on the fact that the 3 were small consumers of Russian oil and fuel. Until recently, Russia’s largest energy customer, the EU, not only refused to sanction energy exports, but also designed its monetary sanctions to explicitly allow Russian fuel to continue circulating.
But now the dating of Russian-European power is crumbling. In addition to its discussions on phasing out imports of Russian oil, the EU has also announced its goal of completely ending Russian imports of herbal fuel in the coming years. exports of crude oil and subtle products such as gasoline, diesel and jet fuel. Meanwhile, taxation of those exports lately provides about a quarter of Moscow’s budget. The EU’s effort to prevent purchases of Russian oil represents a radical and welcome substitution in the global reaction to the Russian invasion.
But Europe’s plans also pose a challenge to Washington. So far, EE. UU. se has refused to impose the toughest sanctions on the Russian power, adding the types of secondary sanctions that have been used against Iran to restrict oil sales to third countries. This reluctance is explained through the Biden administration’s deference to the EU over issues affecting Europe’s energy security and fears that relief in the global oil source could cause gas costs, and therefore inflation, to skyrocket. But now that many Europeans are signaling that they are seriously considering cutting back on Russian energy imports, the U. S. is considering cutting back. The U. S. and its allies want a coordinated strategy. Together, they will have to find a way to reduce Russia’s energy revenues without unduly damaging the global economy.
If Washington and its allies want to meet their goal of sanctioning Russian energy well, they will face a complicated dilemma. Russia’s tax profits from oil depend not only on the number of barrels sold, but also on their value. Equipment to reduce Russia’s ability to sell oil, but the price is set in global markets. Because of the threat sanctions pose to potential buyers, Russian companies will now have to sell their oil at a reduction of more than $30 per barrel from existing global prices. But since the price of oil has risen sharply over the past 12 months, Russia is earning about the same amount per barrel as it did a year ago.
In other words, the sanctions have a complex and contradictory effect on the world’s second-largest oil exporter. The more they manage to disconnect Russian supplies, the higher the global value of oil. This is especially true when there are few resources of immediate choice in the global market to update the lost Russian source – exactly the existing situation.
The EU embargo will exacerbate this dynamic by particularly reducing the amount of Russian oil reaching global markets. Most of Russia’s oil exports are shipped, so in theory they can be sold anywhere. Exports of crude oil and subtle products from Russia pass to Europe, the maximum maritime exports are for traders, shippers and insurers of European commodities. EU sanctions threaten to ban Moscow from employing some of this infrastructure, restricting Russia’s ability to ship oil to other potential customers.
While there is some uncertainty about the impact, forecasts recommend that Russian exports would decline by about 2 million barrels of oil and subtle products in line with the day if the EU stopped all purchases. oil production this year. Given that Russia exported just under 8 million barrels of crude and subtle products a day before the war, this is a significant blow and relief in the global oil supply. However, for the Kremlin, such a drop is still significant far from catastrophic, as reduced production will inevitably push up oil prices.
For energy sanctions to put real pressure on the Russian government’s budget, they will have to cut even further. of the profits of the Russian government. A 17% drop in that figure would be painful but manageable. Moreover, since the value of oil is in dollars, if the Russian government slightly reduces the ruble, it can reduce the effect of minimizing oil taxes on the state budget, because every dollar of oil profits will buy more rubles. In other words, even if an EU embargo were painful for Russia, it would be imaginable for her. That is why Western countries want a new global framework, which systematically reduces the value of Russian oil while keeping it fluid.
Reducing the value of Russian oil while allowing Moscow to sell large volumes abroad would reduce Russian government revenues without increasing the global value of oil. In some ways, the value cap would also incentivize everyone, including China, India, and even Russia itself, to comply.
To perceive how, the enormous influence that the United States, Europe and other allies have in the Russian oil sector is vital. Currently, Europe accounts for a share of Russia’s oil and petroleum products sales. Outside Europe, other big buyers are Japan and South Korea, which have signed sanctions against Russia and are expected to lend themselves to measures that reduce the Kremlin’s revenue.
The key to restricting the price of Russian oil is for those allied countries to come together and dictate the conditions. Think of it as an inverted OPEC: instead of exercising the source to set prices, allies can simply take advantage of their excessive demand to make OPEC’s strength is based on the fact that its members produce about 40% of the world’s oil. Europe, Japan, South Korea and other members of the sanctions coalition account for an even larger percentage of Russia’s oil sales, about 60 or 70 percent. In addition, members of the organization play a key supporting role in Russia’s maritime oil exports, from ports to shipping to marine insurance. These links offer them more influence than their buying force.
It is possible that these states will form a shopping club that publicly announces a price cap for Russian oil. There is room for debate about the right price, which should be high enough for Russia to continue selling. Oil trader Pierre Andurand offered $50 a barrel, while financier and energy expert Craig Kennedy advised as little as $20. As long as the price is higher than the marginal rate of production, Russia has every reason to keep shipping. In previous periods of low prices, such as 2014 and 2020, Russia continued to export more or less constant volumes of oil. Although Russia can theoretically avoid its exports, its garage services are already fully filled. revenues collapse.
Would other customers settle for a value limit?Beyond the sanctions coalition, the biggest customer of Russian oil is China, which consumes about 15% of Russian exports, most commonly through pipelines. Historically, India has not been a big customer of Russian oil, but it has more than doubled its purchases in recent months to take credit for the reduced values. Russia also sells oil to many other countries, such as Lebanon and Tunisia, yet they are small customers and can get the oil they want from select sources.
To get those other states on board, U. S. allies are able to join. The U. S. , Europe and East Asia could impose compliance through sanctions to throw sand into the gears of Russian oil shipments that violate the value limit. nodes of Russia’s oil sales, adding Rosneft, the state-owned oil giant; Gazprombank, the leading bank serving the Russian energy sector; and Sovcomflot, Russia’s largest shipping company. At the same time, the U. S. The U. S. and others can grant waivers for oil shipments that meet the value limit. Such a regime would make it too dangerous for global banks and corporations to deal with those entities, unless the underlying transaction meets the value limit. The serious threat of non-compliance with sanctions would require companies involved in such transactions to demand transparent documentation proving that oil shipments comply.
In addition, allied states may simply threaten secondary sanctions against non-Russian corporations involved in prohibited oil sales. For example, if a Chinese or Indian corporation were to buy a shipment of Russian oil worth more than the ceiling, Western states could simply threaten sanctions on the shipping company that transports the oil, the insurance company that promises the shipment, any port operator that supplies the tanker, and the banks that process the corresponding payments. The same governments can also ban American and European companies from offering any of those Arrays makes it very complicated to make such a sale. The threat in question would force Russia to sell at even greater discounts than at present, applying value limits well.
The United States has used a similar regime to curb Iran’s oil exports, slashing Tehran’s oil sales by more than 60% and locking tens of billions of dollars in revenue streams into escrow accounts. A value cap for Russian oil would be more complex because Russia is a larger supplier of oil, with a foreign industry and more complicated monetary ties. However, compliance would not be based solely on the risk of sanctions. Above all, there would also be a positive incentive to comply: buyers of Russian oil would gain advantages largely because compliance with the value limit would reduce the cost of their own imports. Questioning the limit would be fraught with financial risks and would not bring economic benefits; it would be charity for the Kremlin. Amid tighter global energy markets in years, there is little explanation for why Russian oil consumers would be in a charitable mood.
Currently, only 3 major importers of Russian oil are outside the sanctions coalition: China, India, and Turkey. China may continue to import Russian oil through an oil pipeline virtually immune to sanctions. However, this pipeline represents only a small percentage of Russia. oil exports. Since the pipeline is operating at full capacity, if China wanted to increase its imports of Russian oil in particular, it would have to do so through ships, which already account for more than a portion of China’s Russian oil imports. Moreover, as the average value of Russian oil falls, China is very likely to negotiate a more complicated negotiation for channeled oil, which will further reduce Moscow’s results. India and Turkey, on the other hand, import much of their oil from Russia through shipping routes exposed to Western sanctions. Both are also economically vulnerable to peak oil values and would reap great benefits from lower prices. Most likely, you will stick to it.
A value cap would be a fundamental innovation in the use of monetary sanctions. Given the difficult situations of sanctioning Russian energy exports, a traditional global embargo would be difficult to implement and, even if possible, would increase energy values. USA. The U. S. and its allies would benefit most from focusing on the goal of reducing Russian revenues while maintaining enough Russian oil for a large increase in prices. while focusing tension on petrodollars poured into Putin’s coffers.
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