The Russian leadership proceeds from the principle “there is a ceiling – there is no oil”, which is supported by the corresponding decree of the President of the Russian Federation. But the measures to implement the decree, which the government took at the end of January, look insufficient in terms of sanctions for attempts to circumvent restrictions.
United States Secretary of the Treasury Janet Yellen addressed the Price Capping Coalition, which includes the G7, the European Union and Australia: “Senior Russian officials have repeatedly acknowledged that price caps cut their most important source of income and darken the Kremlin’s already dire financial outlook. . Global energy markets also remain well-endowed, with public reports showing that oil importers are using price caps to secure lucrative deals on Russian oil imports.” As usual, this statement is more bragging than truth.
In the spring of 2022, the authoritative International Energy Agency assured that production in Russia would collapse by 30% under the pressure of sanctions, but supposedly there would be no shortage, since Saudi Arabia and the UAE would instantly replace the dropped volumes. Against the backdrop of these expectations, the United States, the European Union and a number of other players not only decided on an embargo, but also imposed a ban on the sea transportation of oil produced in the territory of the Russian Federation.
Unexpectedly for them, it turned out that the countries of the Middle East do not intend (“have no technical ability”) to mix Russian volumes. In fact, instead of punishing recalcitrant Russia, the G7 countries and the EU risked a global oil shortage and uncontrolled price increases. The USA and Europe wanted to punish, but they didn’t want to overpay due to their wise sanctions policy for black gold. That’s when the idea of a price ceiling came up.
Formally, the price ceiling was introduced to limit Russia’s hydrocarbon revenues and to help “low- and middle-income countries.” And in fact, the “ceiling” is a legal pass to the western ecosystem of shipping. The US Treasury has repeatedly said in recent months that Russia will definitely comply with price caps, as the shipping services provided by the States and Europe are very cheap and reliable, and all alternatives are too expensive.
By hooking Russia on this hook, the countries of the united West would set a dangerous precedent: their established dominance in the market would allow them to dictate terms for other goods as well. The discussions that preceded the introduction of the price ceiling, including negotiations with Venezuela and other major energy suppliers, the closure of the European market, etc., once again confirm the words of Janet Yellen that the price ceiling is not a one-time action, but a fundamentally new mechanism of interaction on the world market.
The oil industry is obviously intended to become a kind of testing ground for this new tool, which should eventually lead to fundamental changes in world trade, not just to replacing existing rules, but to killing the free market and establishing control over it by a single regulator. The possibility of introducing similar mechanisms to limit prices in the gas market is already being discussed today. The next step could be any other market with inelastic demand: grain, mineral fertilizers, rare earth metals
Understanding the emerging risks, the Russian leadership announced that our country would not be subject to the system of marginal prices and would begin to build new supply chains based on its own transport capacities and the capacities of friendly countries. These words were supported by the regulatory framework in the form of a presidential decree “On the application of special economic measures in the fuel and energy sector”, the procedure for the implementation of which was disclosed in government decree No. 118 dated January 28, 2023.
The decree came into force on February 1. But the mechanisms of its execution look too soft. In fact, suppliers of oil and petroleum products are required to ensure that contracts do not include provisions for the application of a “price ceiling”, and also to ensure that this mechanism is not applied until the goods are transferred to the final buyer. What to do if the end buyer, for some reason, wants to resell the received oil (or oil product) under the marginal price system is unclear.
The Ministry of Energy and the Federal Customs Service are instructed to monitor the implementation of the Decree and the cleanliness of suppliers. The most severe punishment that threatens the violator is a ban on the export of goods until the violations are eliminated.
The most valuable item in the Government Decree, perhaps, is paragraph 5, according to which, before March 1, the Ministry of Energy will help the Ministry of Finance approve the procedure for monitoring prices for Russian oil sent for export. Now such monitoring is given to a third-party pricing agency. The Ministry of Energy also has the right to request copies of contracts for the supply of black gold and its products. If suddenly one of the suppliers turns out to be unscrupulous and dodgy enough to take products out of the country within the price ceiling, this can be easily detected. After all, the main and only marker of the action of the price ceiling for exported hydrocarbons will not be the price, but the participation of Western companies in the transportation. In addition, such supplies will immediately become the subject of discussion in all the world’s media.
So far, the US Treasury and other representatives of the G7 and the European Union are only talking about the indirect impact of their ceiling on the supply of Russian hydrocarbons. Until they got to the point of claiming that real deliveries took place within the ceiling. But this does not negate the relevance of the following question: why the government did not indicate responsibility for violating the presidential decree. In the worst case, the violator will be punished with a relatively small fine.
And if a violation becomes known after the fact, then, in principle, no sanctions are provided. How is this possible? Is it not worth introducing tougher penalties for violators, which would be applied at any stage when a violation is discovered. At least in order to emphasize the seriousness of the intentions of our country. If the price cap system starts to work, it will destroy the entire world energy trade.
The position of the editors may not coincide with the opinion of the author
