As the US and EU pile on sanctions, Russia finds more ways to avoid them...
Toughest Sanctions Yet
The week, the EU Sets Harshest Russian Sanctions, Targeting Oil and Insurance, with exemptions to Hungary.
The European Union is set to impose its toughest sanctions yet on Russia, banning imports of its oil and blocking insurers from covering its cargoes of crude, officials and diplomats say, as the West seeks to deprive Moscow of cash it needs to fund the war on Ukraine and keep its economy functioning.
The sanctions, which are expected to be completed in the coming days, are harsher than expected. The ban on insurers will cover tankers carrying Russian oil anywhere in the world. These sanctions could undercut Russia’s efforts to sell its oil in Asia. European companies insure most of the world’s oil trade.
Russian Stays One Step Ahead of Sanctions
But why will these sanctions work any better than any other set of sanctions. Shippers and refiners have been very skilled at hiding origin of Russian oil.
The Wall Street Journal explains Russian Oil Producers Stay One Step Ahead of Sanctions
In the wake of the invasion of Ukraine and sanctions from the U.S. and the European Union, traders are working to obscure the origins of Russian oil to keep it flowing. The oil is being concealed in blended refined products such as gasoline, diesel and chemicals.
Oil is also being transferred between ships at sea, a page out of the playbook used to buy and sell sanctioned Iranian and Venezuelan oil. The transfers are happening in the Mediterranean, off the coast of West Africa and the Black Sea, with oil then heading toward China, India and Western Europe, according to shipping companies.
Overall, Russian oil exports rebounded in April, after dropping in March as the first Western sanctions took effect, the International Energy Agency said. Russia’s oil exports rose by 620,000 barrels to 8.1 million barrels a day, close to its prewar levels, with the biggest increase going to India.
India has emerged as a key hub for Russian oil flows. The country’s imports have skyrocketed to 800,000 barrels a day since the war began, compared with 30,000 barrels a day previously, according to commodity-markets data company Kpler.
A refinery owned by Indian energy giant Reliance Industries Ltd. bought seven times more Russian crude in May, compared with prewar levels, making up a fifth of its total intake, according to Kpler.
Reliance chartered an oil tanker to carry a cargo of alkylate, a gasoline component, departing from the nearby Sikka port on April 21 without a planned destination. Three days later, it updated its records with a U.S. port and sailed over, discharging its cargo on May 22 in New York.
“What likely happened was Reliance took on a discounted cargo of Russian crude, refined it and then sold the product on the short-term market where it found a U.S. buyer,” said Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air. The organization is tracking Russian fossil fuel exports and their role in funding the Ukraine war. “It does look like there’s a trade where Russian crude is refined in India and then some of it is sold to the U.S.”
To avoid large insurance costs, the ships turn off their GPS systems to go dark, then transfer oil to large megatankers such as the Lauren II, a giant Chinese crude carrier that can hold about 2 million barrels of oil.
As long as India and China are willing to bypass sanctions, the oil will get through. However, these added costs impact prices globally.
More ships are use hauling oil from Russia to India and China instead of Russia to the EU. In turn the EU gets oil from Saudi Arabia instead of Russia.
Sanctions drive up the price soo much that Russia is getting more money even though Russia has to discount its price significantly to find takers.
Something Only Politicians Could Concoct
The asininity of this setup is staggering.
The desire to "do something" is so politically powerful that politicians would rather inadvertently aid Russia than do nothing at all.
Price of Crude Jumps as EU Foolishly Doubles Down On Sanctions
Yesterday, I commented Price of Crude Jumps as EU Foolishly Doubles Down On Sanctions
That jump was short lived as Saudi Arabia allegedly considers not counting Russian oil as part of OPEC production goals. This would allow. the Arab states to pump more.
However, that rumor has bitten the dust already.
Russia, Saudi Arabia Signal OPEC+ Is Going Strong
OilPrice reports Russia, Saudi Arabia Signal OPEC+ Is Going Strong
The OPEC+ alliance is solid, with the level of cooperation within it strong, according to a statement issued by the Russian Foreign Ministry following a meeting between Foreign Minister Sergey Lavrov and his Saudi counterpart Prince Faisal bin Farhan Al Saud.
"They noted the stabilising effect that the tight cooperation between Russia and Saudi Arabia has on world markets for hydrocarbons in this strategically important sector," the statement said.
The news comes on the heels of a Wall Street Journal report that said some OPEC members are considering excluding Russia from the extended cartel as Western sanctions weigh on its production.
According to the report, excluding Russia from the oil production increase deal would allow other producers such as Saudi Arabia and the United Arab Emirates to boost their output more significantly, in line with requests made by the U.S. and Europe, as well as the International Energy Agency most recently.
It's worth noting that Saudi Arabia and the UAE themselves have repeatedly signaled that they had no plans to boost crude oil production beyond their production quotas under the OPEC+ agreement. How a change in Russia's participation in the deal could change that sentiment remains to be seen. Saudi Arabia and the UAE are the OPEC+ members with the most substantial spare production capacity.
Politicians vs Central Banks
We had a nice, timely, unsubstantiated rumor just as the EU announcement kicked up more oil sticker shock. Fancy that.
Meanwhile, the oil gets through, just at higher prices for everyone involved.
This Mickey Mouse inflationary game will continue until Central Bank rate hikes are sufficient to counteract political stupidity.
* * *