Prof. ST Hsieh
Director, US-China Energy Industry Forum
April 19, 2023
The war in Ukraine broke out more than one year ago, unfortunately no end is near. It is a proxy war between the US led coalition against Russia, but it is still a regional war, not a world war.
The US led coalition against Russia insisted on no boots on the ground but provided Ukraine with almost unlimited military and financial supports. The US led coalition, mainly thru G7 platform, (hastily) imposed unprecedented sanctions against Russia focused on cutting off Russian revenues from energy export.
The reality is that these sanctions have not achieved the goal of forcing Russia to leave Ukraine alone. Worse, there is no sign that Ukraine is wining.
The fundamental reason why these sanctions have not worked so far is that oil and gas already have a mature global market based on free market principle designed and maintained by the US and her allies. All the sanctions including price cap on Russian crude oil are massive market interventions schemes imposed by a small group of nations in a short time with high hopes.
The other major challenge is the effective enforcement of these sanction measures. Since the primary target of sanctions is Russia, it is difficult for the US coalition to police and execute the sanctions around the world without halting the global trade. It is not surprising that “Current rules make it so that the price cap is operated on an honors system.”
Essentially, the free-market principle that commodity price is determined by supply and demand still applies, “buy low and sell high.” Sanctions, even it works, sanctions still have a price tag for the nations that designed/imposed the sanctions: Europeans’ economy is weak and getting worse every day as the Ukraine war drags on.
China and India ‘launder’ Russian oil and resell it to Western nations that sanctioned Moscow, study says
Wed, April 19, 2023 at 2:25 PM PDT
- China, India, and others have ramped up imports of Russian oil and are selling it to the West, a new study found.
- Analysts at CREA said the “laundromat” operation undermines the price cap and sanctions on Moscow.
- “This process provides funds to Putin’s war chest,” the report said.
Western nations that banned Russian oil have together imported nearly $46 billion worth of oil products from countries that have dramatically ramped up purchases from Moscow, according to a study published Wednesday from the Centre for Research on Energy and Clean Air.
China, India, Turkey, UAE, and Singapore have boosted Russian oil imports over the last year and increased exports of refined products to the European Union, Australia, and most of the Group of Seven, CREA researchers wrote, calling it a “major loophole” that undermines the impact of sanctions on Russia.
In December, the EU banned seaborne imports of Russian crude and joined the G-7 in imposing a price cap of $60 per barrel. CREA found that the price-cap coalition’s imports of refined oil products from the five countries rose by more than 10 million tons in the year since Russia’s invasion compared to the prior year.
“We call these five countries that have increased purchases of Russian oil and ‘launder’ it into products shipped to countries having sanctioned Russian oil the ‘laundromat’ countries,” the study said.
The CREA figures show that the EU has been the biggest importer of Russian refined products, with Australia next. The highest proportions of imported oil products were diesel (29%), jet fuel (23%) and gasoil (13%).
The study also found that 56% of Russian crude oil shipped to laundromat countries have been transported by vessels owned or insured by the price-cap countries in the period December 2022 up to February 2023. The figure climbs to 74% for oil products exported from laundromat countries in the same period.
In effect, the countries that have agreed to sanction Russia are the ones who have become the largest importers of Russian crude, per CREA.
“This is currently a legal way of exporting oil products to countries that are imposing sanctions on Russia as the product origin has been changed,” the authors of the study said. “This process provides funds to Putin’s war chest.”
US companies may be unknowingly helping Russia evade the oil price
Tue, April 18, 2023 at 2:47 PM PDT
- Russia could be funneling crude to Asia above the $60 price cap, the US Treasury said on Monday.
- US companies could be unknowingly providing related services for sales above the cap.
- Russia has tried to oil sanctions, with some experts calling the price cap ineffective.
Russia could be evading the $60-per-barrel price cap on its crude, and US firms may be unknowingly facilitating the trade, according to a statement from the US Treasury.
The Office of Foreign Assets Control within the Treasury Department acknowledged reports saying that Russian crude exported through the Eastern Siberia-Pacific Ocean pipeline to Asia may have been priced above the cap, with US companies being tricked into providing services.
“These US service providers may be unaware that they are providing covered services involving Russian oil purchased above the price cap, as the non-US persons involved in the exports may have provided incomplete or false documentation or used other deceptive practices,” OFAC said in an alert on Monday.
Such practices could include “spoofing,” the office said, which disguises the origin of an oil tanker by manipulating the ship’s identifying system.
OFAC advised shipping and insurance firms to be mindful of the risk of price cap evasion, adding that firms could potentially detect ships with manipulated identities by using other available maritime records.
In December, Western nations imposed the price cap, which prevents Russia from accessing Western shipping and insurance services unless its oil is sold below the $60-per-barrel threshold. The cap was designed to crimp Russia’s oil revenue amid its invasion of Ukraine but prevent a supply shock.
Russia has taken other measures to skirt the sanctions, such as by assembling a shadow fleet of over 100 oil tankers, and mislabeling some of its crude products, sources previously told Bloomberg.
And some estimates show that the price cap has been largely ineffective so far, with Russian crude being sold way above $60, researchers said.
Current rules make it so that the price cap is operated on an honors system, one US Treasury official previously said, with Western companies merely reporting that oil was sold below the price cap without submitting verifications to a registry.
Verifications could be as simple as asking Russian oil customers to promise in writing that they will adhere to the price cap, the Treasury official said. Another official added that there was no real way to enforce the price cap mechanism.