Page 11 - EurOil Week 24 2022

EurOil POLICY EurOil

current levels yet positive for Ukraine and the Guriev suggests two strands. The first would
Free World as a whole.” Russia will have to supply be to introduce a high tariff on oil imports into
more to global markets while getting times less the EU, which can be implemented quickly. Part
than now because of the transfer cap; besides, of the amount paid by buyers of Russian hydro-
market prices will decrease due to increased carbons should be transferred to Ukraine as
supply, Vitrenko concluded. reparations or stored in special escrow accounts
Recently published budget data from Rus- until reparations are formally awarded, Guriev
sia’s finance ministry suggests that Moscow suggests, but admits that with the cost of living
will struggle to cover the mounting costs of the already soaring in Europe there is little political
war, with military spending having increased appetite for a new oil tax.
by almost 130% in May alone to RUB630bn Guriev’s second strand is the same as Vitren-
($10.2bn), or 6% of annual GDP on a pro-rated ko’s – a price cap.
basis. “A price cap could be implemented immedi-
The oil and gas revenue Russia is earning is ately – say, at $70 per barrel – and lowered by
increasingly important, and boosting prices in about $10 each month the war continues. Yes,
the short term with an incomplete oil embargo Putin could refuse to sell oil at this price. But
will actually benefit the Kremlin, as it needs given that he is already desperate enough to
more cash now to fund the fight. If revenues are sell to China and India at steep discounts, and
cut in 6-8 months’ time, as is the proposal in the today’s energy prices far exceed production
sixth package, the war may already be over by costs, this seems unlikely,” Guriev argues.
then and the Kremlin will be able to slash spend- Moreover, if a falling price cap to lower the
ing to cope. price paid in Europe were accepted and paid
The cost of a barrel of oil was $120 at the time by Europe then China and India would have
of writing, well above the budget’s assumption of no incentive to pay higher prices. The price cap
$42, and earning the Kremlin very large excesses could have the effect of pulling down the prices
– amplified by the fact that imports have tum- on the whole market. That would also have the
bled by half, also due to the sanctions. beneficial result of reducing the red hot inflation
However, the recent budget data showed rates.
that Russia ran a fiscal deficit of more than Guriev dismisses the objection that a price
RUB260bn ($4.7bn) in April, or 2.5% of GDP, cap would distort the market by pointing out
says Guriev. Russia has been selling its oil at a that the oil business is run by the OPEC+ cartel
huge discount – accepting $70 per barrel for and was never a competitive market in the first
Urals crude in recent weeks, 30% below the mar- place.
ket price – while overall output is set to decline The problem that a price cap might spur
by 10% this year. Meanwhile, non-hydrocarbon a black market is more serious and there are
revenues have plummeted, leaving oil and gas already examples of sanction dodging by creat-
taxes accounting for more than 60% of fiscal rev- ing “crude cocktails” where Russian oil is mixed
enues, compared with less than 40% a year ago. with others to create a blend with less than 50%
In theory, cutting off Russia’s ability to export oil of Russian crude that is not sanctioned. But
should hit Moscow where it hurts. Guriev argues that these problems can be dealt
“The problem is that the embargo will help with using secondary sanctions and some good
Putin in the short term. The mere announce- detective work.
ment of it has already caused oil prices to spike. “The EU’s oil embargo will hurt Putin, but not
That is why Europe should complement its oil soon enough. Europe must immediately impose
embargo with additional, immediate measures,” a price cap on Russian oil and gas,” concludes
says Guriev. Guriev. ™

Week 24 16•June•2022 www. NEWSBASE .com P11