Russian experts: Europe is the biggest loser from setting the price of oil for these reasons

Moscow

- The embargo on Russian oil and the new price ceiling set for it by the European Union, the Group of Seven, and Australia entered into force today, Monday, December 5, 2022, amid strong condemnation from Russia, and a vow not to provide oil to countries that have adopted or may adopt at a later time. this situation.

The new decisions prohibit, directly or indirectly, the provision of technical assistance, intermediation or financing services, or financial assistance related to trade, brokerage, or transportation, including by ship-to-ship shipment, or to third countries, of crude oil or petroleum products Originating in Russia or exported from Russia.

Besides, the EU's "oil" sanctions package included an embargo on offshore oil supplies from Russia.

"a decision for the sake of a decision"

Moscow, in turn, severely criticized the ceiling, and announced that it would not supply oil to the countries that joined the new decisions, and the Russian government confirmed its refusal to follow the new restrictions, noting that politicizing the energy sector would only lead to a lack of resources in the market, and that it would not supply oil and petroleum products to countries. that will apply the price ceiling principle.

It also warned that this would also lead to a decrease in the supply of oil, and that any other commodities it would be possible to apply this mechanism to in the future.

As for the press spokesman for the Kremlin, Dmitry Peskov, he said that it is currently difficult to assess the impact of the price ceiling decision on the global market, describing the European position as "a decision for the sake of making a decision."

The main stumbling block to the decision was Poland's position. While most countries initially suggested a range of $65-70 a barrel, Warsaw came out with a stringent demand for a cap of $30.

Exceptions for Hungary

At the same time, Hungary will be exempt from applying the ceiling on Russian oil prices, according to what Foreign Minister Peter Szijjarto said, who made it clear that his country "struggled a lot for the interests of Hungary and in the end succeeded, and it is time for Brussels to realize that such measures harm the European economy," calling To increase the supply of energy, because this may lead to lower prices, according to him.

The introduction by the European Union of a price cap for oil from Russia provides a transitional period, as the new rules will not apply to oil that was purchased at a price above the permissible limit, and was loaded on ships before December 5 and offloaded before January 19, 2023.

Alternatives and loopholes

But Russian economic analyst Victor Lachon ruled out that the recent decisions would lead to significant losses for the Russian economy, because Moscow has many options to circumvent the restrictions.

He said in an interview with Al-Jazeera Net that the most likely option is trade through friendly countries, a supplier, for example, India, which buys Russian oil in record quantities.

At the same time, he indicated that the documents issued by the European Union contain many exceptions that - in his opinion - constitute loopholes that help circumvent in various ways the repercussions of the new decisions. The price ceiling does not take into account the costs of transportation and insurance, meaning that these costs can be included in the price. The final, which in this case will be higher than the ceiling.

Hence, the Russian economic analyst continues, that this could become an argument for some countries if the United States and the European Union asked them about the reason for pushing the price of oil higher than the ceiling, as it would be possible to write down the price of oil itself in documents within the limits, but it would be possible to manipulate it. Transportation and insurance rates, if a Russian company or a friendly company is engaged in transportation or insurance.

In addition, Lashon noted that oil that is processed outside of Russia is not subject to restrictions, and that is almost all of the pipeline oil that goes to Europe, he said.

In this context, he recalls that the US Treasury authorized the supply of Russian oil to Bulgaria, Croatia and landlocked European Union countries.

In addition, Washington stated that until September 23, 2023, it is allowed to supply oil to Japan from the Sakhalin-2 field, and then the expert concludes that given these exceptions, the price ceiling will not really work.

Double penalties

For his part, Russian economist Vladimir Chirkov pointed out that there are concerns that large transport companies may refuse to transport and secure Russian oil, because this market is largely controlled by the United States and other countries that have joined the sanctions imposed on Russia.

However, he stressed the possibility of finding mechanisms that help in legal circumvention of the imposed sanctions, as is the case with a group of different commodities that were subject to previous sanctions.

He explained in this context that the problem will not be in oil prices, but rather in the tankers and tanks that will deliver it, explaining that the cost of transportation will be somewhat greater at the beginning, but after that the logistics services will be evaluated, expecting the interest of many transport companies to cover the demand for oil transportation. Russian.

returns under threat

The sale of oil constitutes a large share of the revenues of the Russian budget and oil companies.

According to local estimates, Russia could have earned more than $320 billion this year (before the recent sanctions) from oil and gas exports, and tax revenues from selling oil were expected to reach more than $180 billion by the end of the year, which raises a question. About possible losses to Russia due to the introduction of the new pricing ceiling.

Here, Chirkov stressed that Russia will win in any case, “With the introduction of the ceiling, the price of oil will rise, which will cause tension among traders. There will be concerns about supplies and the timing of delivery, and Western measures will lead to an increase in oil prices, which is not bad for Russia.” ", according to him.

He believed that the United States could deal with the new reality, being the largest oil producer in the world.

But Europe - according to him - will not adapt.

There are oil refineries that focus on the oil that runs through Russian pipelines, and it's hard to imagine what would happen there if supplies were cut off.

He concluded that saving Europe will only be through exceptions to the rules of the oil ceiling, "Only after these exceptions will Europe continue to buy Russian oil at market prices over a period of months, and perhaps years, because without Russian oil, the collapse will begin in Europe. Now they have problems with electricity." And gas, and if there's an oil outage now, the costs will be enormous."