"An attempt to cover up a global miscalculation": how the West intends to limit Russia's income from oil exports

The US Treasury Department reported that Washington, along with its allies, had come to an agreement to impose two price ceilings on Russian oil products.

“Deputy ministers (of the G7 countries, the EU and Australia.

) have agreed on an approach to refined products that introduces two specific price ceilings, in addition to the price ceiling for crude oil: one price ceiling for those products that are usually traded at a price higher for crude oil, such as diesel and gas oil, and a second for those products that trade at a price below crude oil par, such as fuel oil,” the agency said in a statement.

As noted, the parties also agreed that this approach will "more carefully reconcile" the price ceiling policy for refined products.

The statement said that the virtual meeting held by U.S. Treasury Deputy Secretary Wally Adeyemo with his Price Ceiling Coalition colleagues was to discuss “progress” on the price cap on Russian oil shipped by sea, as well as determine the way forward. "in order to finalize the price cap policy for Russian refined products."

“The meeting points to the unity of the participants in the price ceiling coalition in terms of holding Russia accountable through this policy of historic significance,” the US Treasury said.

In addition, the ministry said that Washington and Western countries will revise the price ceiling for Russian oil.

“Provided that the price ceiling continues to meet the dual purpose of the coalition, the deputy ministers agreed to revise the level of the crude oil price ceiling in March.

This will give the coalition the opportunity to take into account the development of the situation in world markets after the introduction of price ceilings for refined products, and also allow the coalition to get acquainted with the results of the technical review of the crude oil price ceiling conducted by the EU, ”the US Treasury announced.

The structure also noted that the coalition has two goals: to limit Russia's income from oil exports and to achieve "stabilization of world energy supplies."

Anti-Russian efforts

Recall that in early December, the G7 countries (USA, Canada, France, Germany, Italy, Japan, Great Britain), the EU and Australia banned their companies from insuring and transporting Russian oil by sea to third countries at a price above $60 per barrel.

From February 5, 2023, the relevant restrictions should also apply to petroleum products.

Moscow reacted to this decision: Russian President Vladimir Putin signed a decree on retaliatory measures to the introduction by Washington and its allies, as well as other countries, of a ceiling on prices for Russian oil.

As noted in the document, these steps will be taken by the Russian Federation in view of the “unfriendly and contrary to international law actions” of the United States and the countries that have joined them.

In turn, on January 10, the Ministry of Energy of the Russian Federation explained that the decree of the President of Russia implies a refusal to work with traders using the limit.

The department added that "the ban applies to any transactions with Russian oil, up to the end consumer."

The Ministry of Energy also emphasized that "the current illegal interference of Western countries in market mechanisms" affects the safe and stable energy supply of the world, and will also require "significant joint efforts on the part of responsible countries to correct the situation."

The day after this announcement, Russian Deputy Prime Minister Alexander Novak, at a meeting between the president and the government, announced that there were no problems with oil export contracts.

According to Novak, contracts for February have been concluded, and companies have not reported problems due to sanctions.

"Makes about the same money"

According to experts, the West had to resort to setting a price ceiling for Russian oil and oil products from the Russian Federation, since the sanctions policy against Moscow failed.

“The United States, the European Union and their partners miscalculated in their forecasts, hoping that Russian oil production would significantly decrease under the pressure of sanctions and that there would be no deficit on the world market, since these volumes would supposedly be instantly replaced by supplies from other countries.

In this regard, the West first decided on an embargo on Russian oil and oil products, but after a while oil production in the Russian Federation began to recover, and Russia's partners in OPEC + said they could not replace Russian supplies, ”explained Alexander, Deputy Director General of the National Energy Institute Frolov in an interview with RT.

• Oil refinery in Germany

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• © Waltraud Grubitzsch/dpa-Zentralbild/dpa

Thus, Western countries "with their own hands created the risk of a shortage" of oil and oil products on the world market and, in order to get out of this situation, they came up with a system that is designed to level such risks, says Frolov.

“As a result, a system of marginal prices for Russian oil and oil products was formed, and this looks like an attempt by the West to cover up a global miscalculation and its own mistakes, which could hit Europe, the United States and their allies hard.

This whole situation shows a low level of expertise in assessing the impact of various kinds of sanctions on the Russian energy sector,” Frolov said.

He recalled that in conditions when Russia is almost completely reorienting oil supplies to the East, such a strategy of the West is doomed to failure.

Already, the media are reporting, the expert stated, that Russian oil products are being “cleared” of their status as Russian and transported around the world.”

“In fact, Russian oil products will be present on the world market in the same volumes.

In addition, Russia increased supplies to China and India.

Therefore, the introduction of marginal prices for Russian oil products by the West will ultimately be of an exclusively ideological and advisory nature, ”Frolov said.

A similar position is shared by the leading analyst of the National Energy Security Fund, an expert at the Financial University, Igor Yushkov.

“For example, the Russian Federation supplies its oil to India, and in large volumes, where it is processed not only for domestic consumption, but also for export purposes, so that later oil products, including diesel fuel, can be transported to the same Europe and to other markets.

And neither the price ceiling nor the embargo applies to these oil products.

For Europeans and in the West as a whole, processing plants will suffer because of this, ”said Yushkov.

From his point of view, the West will not be able to make Russia lose oil revenues, but at the same time there would not be a shortage in the market.

“This approach is inadequate and threatens with a shortage in the market.

During the transition period, Russia is likely to cut some refining volumes in favor of more crude oil exports.

This is what can cause a shortage in the world fuel markets and drive up prices.

As a result, countries that impose sanctions and price limits against the Russian Federation may themselves suffer from this.

Russia, however, will still earn about the same money as before, because each ton of the remaining oil products will cost more, ”the expert argues.

Yushkov also expressed confidence that "there is no question of any stabilization of supplies, which the West is counting on, introducing price ceilings for oil and oil products from the Russian Federation."

“After all, the West itself destroys market pricing, comes up with some kind of price ceilings.

And other companies around the world see that such a mechanism is used today against Russia, and tomorrow it can be used against any other state.

Therefore, of course, no stabilization of the market occurs.

On the contrary, an even greater deficit is being provoked, ”concluded Yushkov.