Perfect time to hit Kremlin's oil revenues - Bloomberg
Photo: The United States may cut the Kremlin's oil revenues (Getty Images)
Falling oil prices and a looming period of oversupply could create the perfect opportunity to tighten sanctions on Russian supplies to the point where they actually start hitting the Kremlin's pocketbook, Bloomberg reports.
According to Bloomberg oil strategist Julian Lee, the current price cap mechanism, which has not limited Moscow's oil revenues, was introduced at the request of the US administration, which was concerned that an actual reduction in Russian exports would lead to a sharp rise in prices. However, this no longer raises the same concerns as it did two years ago when the measure was being developed.
Even with geopolitical tensions in the Middle East reaching their highest level in a decade, Brent crude is still hovering below $75 per barrel and dropped below $70 in September. This is a quarter less than it was when the price cap was developed.
The agency says that sanctions imposed on individual tankers for violating the price cap have been moderately successful. These vessels initially stood idle for months after being included in the US, UK, or EU lists.
More recently, Moscow has begun to bring them back into service. Their return had no consequences for those who received the ships in their ports. “Perhaps it’s time it did,” writes an oil strategist for Bloomberg.
Shadow fleet
Currently, 90 oil tankers are subject to sanctions by one or more of the three administrations. A significant increase in this number (the shadow fleet used to transport Russian oil is estimated at 600 vessels) and the introduction of real costs for their use will hit Moscow hard, the agency says.
If Indian, Chinese, and Turkish refineries could be persuaded to stop or reduce imports of Russian crude oil transported by shadow fleet vessels, Moscow's oil exports would inevitably fall.
According to the International Energy Agency, removing 1 million barrels of Russian crude oil per day from the market could only balance supply and demand in the first half of 2025.
“In a weak market, the price impact would be manageable. The effect on the Kremlin’s war chest would be far more damaging,” the agency says.
In addition, there is enough spare production capacity that could compensate for any loss of Russian barrels.
The OPEC group of oil producers could theoretically increase supply by more than 5 million barrels per day if they wanted to. This is almost twice as much as Russia's crude oil exports by sea.
Relations between Riyadh and Moscow are much closer now than they were in March 2020, when the Kremlin refused to follow Saudi Arabia's line on production policy.
Back then, a short-lived period of shared production was suddenly and dramatically interrupted by the collapse in oil markets caused by the COVID-19 pandemic.
Now it is far from clear whether Riyadh will choose Washington over Moscow when it comes to oil policy.
Chance for Biden
The outgoing US President Joe Biden has demonstrated that he is ready to step up support for Ukraine before he leaves the White House. Effective sanctions against Russian oil exports would be a boon for Kyiv.
“If the West is serious about hitting President Vladimir Putin’s oil income it may have no better opportunity than the weeks before President-elect Donald Trump takes office,” the agency says.
The US government intends to cut Russia's oil and gas export revenues in half by 2030.
Read more about the Kremlin's shadow fleet in RBC-Ukraine's article.
