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bne November 2023
Opinion 59
Pre-war Western P&I Clubs covered about 95% of all tanker insurance, suggesting cutting companies off from Western insurance would be an effective enforcement tool. The reality is that Russian insurance companies have stepped in to insure non-Western tankers that have vastly expanded those ships that can operate outside the sanctions regime but still have the obligatory insurance to enter ports.
The US-led price cap was designed both to limit revenue for Moscow and to keep Russian oil flowing to the global market. While Russia’s oil revenues fell sharply in the first quarter
of this year, they have rapidly recovered in the second half
of this year, as predicted by Russian Finance Minister Anton Siluanov, and Russia is on track to easily meet its 2% of GDP budget deficit target this year, “or less,” Siluanov said at a conference last week. “The worst is over,” Prime Minister Mikhail Mishustin told the same conference.
"All along we had expected Russia to take countermeasures
to try to circumvent the price gap," said Ben Harris, vice president and director of the Economic Studies programme at the Brookings Institution, adding that amassing grey tonnage would be one of the measures, S&P Global reports.
Based on risk consultancy Windward's estimates, 2,452 tankers were confirmed to be or potentially involved in sanctioned trades and could operate outside the price cap as of early October, up from 855 tankers in January 2022, S&P Global said in a note.
“The price cap does not directly target grey tankers but G7-based shipping insurance and marine service providers, alongside coalition members, have come under increasing political pressure in recent months as Russia's main export crudes continue to trade above the $60 per barrel threshold set by them last year,” S&P Global reports.
As most of Russia’s oil exports now operate outside the sanctions regime that means rather than reducing the Kremlin’s income, it is benefiting from the full economic benefits of the rising cost of crude. Both Russia and OPEC have instituted voluntary production cuts that have pushed the cost of Brent up over $90, and those cuts were extended at the start of October until at least the start of next year.
Majority of Russian crude exports outside the oil price cap
“Russian Urals crude oil prices on an FOB Primorsk basis have been above $60/bbl since July 11, according to Platts assessments by S&P Global Commodity Insights, but nearly half of the grade's exports were still facilitated by companies with Western links last month,” S&P Global said.
For Russia's ESPO grade from the Pacific coast, which has generally traded above the threshold since last December, Western tankers' share still reached 24% in September.
"There must be a large-scale violation of the oil price cap," said Isaac Levi, an analyst at the think-tank Centre for Research on Energy and Clean Air, as cited by S&P Global. "There is a low perceived risk of being found guilty of violating measures ... The enforcement agencies perhaps do not have the capacity."
“Russian Urals crude oil prices on an FOB Primorsk basis have been above $60/bbl since July 11, but nearly half of the grade's exports were still facilitated by companies with Western links last month”
Currently, tanker firms and insurers must obtain attestations from their clients that the barrels are sold within the threshold, but they do not need to verify them.
"Russian sellers ... affiliated with Russian oil majors [and] traders likely provide attestations to shipping and insurance companies that do not reflect the actual price, which may be defined as attestations fraud," Kyiv School of Economics said in a research note last month.
American rhetoric holds that the oil price cap is working, but its efficacy is increasingly being questioned in public. US Treasury Secretary Janet Yellen recently told the Wall Street
ESPO, Sokol crude exports dominated by non-price cap trade
Source: S&P Global Commodities at Sea and Maritime Intelligence Risk Suite
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