Page 5 - FSUOGM Week 05 2023

FSUOGM COMMENTARY FSUOGM

Jury still out on the effectiveness

of the oil price cap scheme on

Russian exports

It is too early to tell whether the oil price cap will prove effective.

RUSSIA THE oil market took a double shock on Decem- customers. Add the fears of a global recession,
ber 5, when an EU ban on importing Russian and these two factors have kept the contract price
WHAT: oil and an oil price cap scheme were introduced for Russian oil below the $60 level where the
The EU placed an simultaneously. That was followed by a prod- cap kicks in. Consequently Russian oil exports
embargo and a price cap uct ban on February 5 which has only just gone have been able to continue largely unimpeded,
on Russian oil exports in into effect. Analysts say that it is still too early but there has been a rejiggering of the global oil
December. to assess the effectiveness of these sanctions, or trade.
predict how much damage they will do to the “For now, the jury on the effectiveness of the
WHY: Russian budget. cap is still out. Russia’s growing “shadow fleet”
The bloc wants to “This overlap was, of course, by design, since of oil tankers is cause for concern, as it affords
reduce its own imports one of the original motivations for the cap was Russia the means to ship oil outside the cap as
on Russian crude while to keep Russian oil flowing to global markets as prices rise,” says Brooks.
also limiting how much the EU embargo took effect, " says Robin Brooks, Brooks says that the oil price cap will proba-
revenue the country chief economist with Institute of International bly become more relevant as the year wears on.
can make from sales Finance (IIF). “However, this overlap now also As shipping companies work through the logis-
elsewhere. means that it is premature to make a full assess- tics of running the new routes and Russia’s own
ment of the cap.” fleet grows, the discount on Urals blend com-
WHAT NEXT: The embargo has had an effect insofar as pared to Brent is likely to narrow again.
The price cap is hard instead of a few days steaming from the Baltic At the same time, if global recession fears
to assess as Russia is ports to western European ports, Russian oil fade, and China’s economy in particular bounces
offering greater discounts now has to travel halfway round the world to back from its COVID shutdown last year, then
anyway to Asian buyers. Asian markets, drastically increasing the cost. oil prices may rise, both of which will lift the
Caps on petroleum The oil price cap is hard to assess as well, as price of Russian crude up towards the price cap
products could have a these longer delivery routes have also increased level of $60.
harder impact. the discount that Russia must offer Asian “We expect that the Urals discount will

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