Prof. ST Hsieh
Director, US-China Energy Industry Forum
August 2, 2022
War in Ukraine is 160 days old and counting. To punish Putin for starting the war on February 24th, West quickly implemented unprecedented economic sanctions with a focus on Russian energy export. However, it is absolutely mind boggling to learn that, according to IEA, Russian oil export revenue in June increased by $700 million month on month due to higher prices, 40% above last year’s average.
Essentially, the sanction “measures” devised by G7 policymakers, so far failed miserably. These measures actually rewarded Putin rather than punishing him. No wonder the war in Ukraine is still going. More bad news is that these failed measures pushed up energy prices and EU is already suffering from surging inflation. Now the west is forced to dial back its sanctions against Russian oil export, but the damages are already done.
Unfortunately, the worst is yet to come for Europe because Putin pulls the strings on Russian natural gas export to Europe.
Instead of tweaking the failed policies on sanctioning Russian oil or proposing new, unpopular ideas such a price capping, West policymakers must learn the lessons from the failed sanctions. Fundamentally, West must accept that energy market is globalized. The war in Ukraine is limited in Europe, but the West does NOT have the capacity to force all nations to join the fight against Russia. So far, G7 dominated EU “designs” and “announces” sanction measures without consolations with any other major powers around the world in advance. It is a “power play” and so far, it has not worked. In fact, it will never work!
The West is dialing back its efforts to stop Russian oil exports as they worry about inflation, report says
Harry Robertson Tue, August 2, 2022 at 6:12 AM
Western governments are dialing down the strength of their sanctions on Russian oil trading as they worry about surging inflation, according to a report.
The Financial Times reported on Sunday that the UK government is holding back from a planned move to ban insurance on ships that carry Russian oil.
It comes after the European Union tweaked its sanctions regime to allow European companies to transact with Russian state-owned enterprises to transport the country’s oil around the world.
Western governments slapped sanctions on Vladimir Putin’s Russia after its invasion of Ukraine in late February. The US has stopped the import of Russian oil, while the UK and EU are phasing in a similar ban.
However, the bans, along with “self-sanctioning” by some global energy companies, have contributed to a jump in energy prices which has driven up inflation around the world.
The FT reported in May that the UK and EU were planning a joint ban on insuring ships carrying Russian oil, citing British and European officials. Analysts said it would be a major blow to the country’s energy sales, given the importance of the London insurance market to global shipping.
However, the newspaper reported on Sunday that the UK is yet to implement the ban, even though the EU has pressed ahead. A spokesperson for the UK’s Foreign Office told Insider: “We won’t speculate on future sanctions.”
Meanwhile, the EU has modified its rules so that European companies can transact with certain state-owned Russia enterprises, such as Rosneft, to get oil to third countries.
The EU moved in June to ban the import of Russian oil into the bloc after December 2022. It also said it would ban the provision of services — such as financing — for the transport of Russian oil to third countries.
However, in late July the EU loosened its rules. An EU spokesperson told Insider that the sanctions now include an exemption allowing transactions with certain Russian state-owned companies “if they are strictly necessary for the direct or indirect purchase, import or transport of oil” to third countries.
“This is in line with combatting the false narrative that EU sanctions cause food and energy insecurity around the globe,” the spokesperson said.
The FT reported that officials in Washington said the US and UK still intend on banning insurance by the point at which the EU’s own ban takes effect in December.
Yet the newspaper said Washington wants an oil price cap in place first. The White House has been leading efforts to reach an international agreement on capping the price of Russian oil, in an effort to reduce inflation in the US and globally.
G7 mulls options to restrict Russian oil profits
Tue, August 2, 2022 at 6:02 AM
LONDON (Reuters) -The Group of Seven (G7) wealthy nations is looking at blocking the transportation of Russian oil among other options to deprive Moscow of bumper revenues amid its invasion of Ukraine, unless it heeds a price cap.
In a statement released by Britain, G7 foreign ministers said they were considering “a comprehensive prohibition of all services that enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultation with international partners.”
“In considering this and other options, we will also consider mitigation mechanisms alongside our restrictive measures to ensure the most vulnerable and impacted countries maintain access to energy markets including from Russia.”
Many countries have imposed sanctions on Russia following its invasion of Ukraine, which Moscow calls a “special military operation”, but key oil consumers China and India have stepped up imports of discounted Russian barrels to record levels.
Despite Russia’s oil exports hitting their lowest levels since last August, its export revenue in June increased by $700 million month on month due to higher prices, 40% above last year’s average, the International Energy Agency said last month.
Western leaders have proposed addressing that through an oil price cap to limit how much refiners and traders can pay for Russian crude – a move Moscow says it will not abide by and can thwart by shipping oil to states not obeying the price ceiling.
Some traders and oil market analysts have expressed doubts a price cap would work as Russia has found ways to ship its oil to Asia without the use of Western ship insurance. Moscow could also stop exports of some oil altogether, leading to a further spike in energy prices.
G7 members have scrambled to find ways to plug energy shortages and tackle soaring prices while sticking to their climate commitments amid the tensions with Russia.
“As we phase out Russian energy from our domestic markets, we will seek to develop solutions that reduce Russian revenues from hydrocarbons, support stability in global energy markets, and minimise negative economic impacts”, the G7 statement said.