Russian oil continues to be a thorn in the side of the international community and the European Union in particular.
European countries thus failed, on Monday, November 28, to cap the price of a barrel of Russian crude transported by tanker.
Most countries wanted a rather high cap – around $65-70 a barrel of Brent – while Poland and the Baltics were fighting for a price closer to $30.
It must be said that the Twenty-Seven were trying their hand at a delicate balancing act: agreeing on a price low enough to offend the Russian cash inflows which allow Vladimir Putin to finance his war, without depriving the world market for all Russian black gold, which would cause energy prices to soar dangerously.
Fear of a surge in oil prices
This battle for a tariff cap on Russian oil exports by tanker has already been going on for several months on a global scale.
Before the summer, "Europe had adopted a section of sanctions which provided for an embargo on Russian oil exports", underlines Simone Tagliapietra, specialist in European energy policy issues at the Bruegel Institute.
The scheme then devised, which is due to come into force on December 5, provided for two aspects: the cessation of imports of Russian oil on European soil and measures to make it more complicated to redirect its exports to third countries, such as China or India.
It is this second part of the sanctions that is at the heart of the current battle over the price cap.
The Europeans had first planned to prohibit European insurers (among the largest in the world) from insuring Russian oil tankers.
Without this sesame, it would not be possible for a carrier to set sail. As a result, the precious Russian hydrocarbon would have become much rarer on the world market.
A prospect that began to panic some countries, when oil prices began to climb because of OPEC's decision to cut production.
"The G7 countries have, at the instigation of the United States, proposed to establish instead a ceiling on the prices above which the insurers could not insure the ship transporting the Russian hydrocarbon", explains Simone Tagliapietra.
The ban was thus transformed into a less bitter pill.
And not only for Moscow.
Washington wanted to avoid a catastrophic scenario: to see the shortage of hydrocarbons increase due to the disappearance of Russian oil (Russia is the world's second largest exporter), and energy prices increase to such an extent that the world finds itself almost as penalized by these sanctions as Moscow.
They therefore proposed a ceiling price of between 65 and 70 dollars per barrel, which was then taken up by the European members of the G7 at the beginning of September.
At the time, Brent was selling for more than 80 dollars on the world market and the American proposal could be seen as a real blow to Russian finances.
The idea was that insurers would not be allowed to cover tankers that transported Russian crude sold at more than the ceiling price.
The ceiling price of the G7, window dressing?
Except that Poland quickly found that this proposal was window dressing.
Supported by the Baltic countries, Warsaw recalled that Russia was already forced to sell its oil at a discounted price… around 65 dollars a barrel.
The G7 proposal "is very likely to have absolutely no effect on the income that Moscow derives from its oil exports", underlines Lawrence Haar, specialist in energy economics at the University of Brighton.
Poland, one of the countries advocating imposing the toughest possible sanctions on Moscow, argues for a price cap closer to $30 a barrel.
Warsaw recalls that the cost of producing crude in the Urals barely exceeds 10 dollars per barrel.
This proposal may seem more in tune with the stated objective of drying up the manna that allows Vladimir Putin to finance his war in Ukraine.
But "it risks being politically unacceptable for certain European countries", underlines Simone Tagliapietra.
Indeed, states like “Cyprus or Greece must watch over the interests of their maritime sector”, notes Harald Oberhofer, economist at the Austrian Institute for Economic Research (Wifo).
"They fear that their shipowners will lose ships that will prefer to register in countries outside the European Union in order to escape the effects of the European embargo."
Not to mention that, of course, "95% of the insurance underwriting for oil tankers is currently provided by the G7 consortia. But how long will it be before the Chinese start to replace it?", asks Barry Eichengreen, American economist during a debate organized in September by the Center for Economic and Policy Research (CEPR), tells Les Échos.
The situation thus looks like a dead end.
Too high a ceiling price will have no effect on Russia's cash flow, while if it is too low "Moscow will find ways to circumvent the sanction," said Lawrence Haar.
No good solution
Proponents of the "G7 award" argue that this is a first step.
They explain that the most important "is to introduce the sanction mechanism, even if it means lowering the ceiling price afterwards if necessary", explains Simone Tagliapietra.
It would, in fact, be a sort of Damocles sword that the community could permanently wave above the heads of the Russians.
"The threat is always greater than the execution", to use the words of Aaron Nimzowitsch, a famous chess theoretician who explained that it was often better to hover the danger on the chessboard to push the opponent to the foul and win a game.
Another option would be to place the ceiling price between the G7 proposal and that of Poland.
“We could imagine a price of around 50 dollars”, underlines Simone Tagliapietra.
But this does not solve the problem inherent in this mechanism.
"The price cap only works if it is below those of the market, and we cannot know what will happen to the price of oil in three months or more", sums up Harald Oberhofer.
If you have to constantly adjust the cursor by following the course of the crude, the whole construction is likely to quickly appear like a gas factory.
"The only effective way to reduce Russia's oil revenues would be to simply prevent Russian ships from leaving ports with their precious cargo," notes Lawrence Haar.
But to do so, you need to be able to impose such an embargo… by force if necessary, which would probably be considered an act of war by Moscow.
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