Thread by @EHunterChristie

1-19
This recent WSJ article raises questions on the effects of #EU #sanctions on #Russian #oil.
Note: the "6th package" of sanctions of 3 June 2022 shall prohibit most imports of RUS oil into the EU, and EU shipping to any destination, from December.

wsj.com/articles/eu-sh…

2-19
It was noted in June that:
"After a wind down period of 6 months, EU operators will be prohibited from insuring and financing the transport, in particular through maritime routes [making it] difficult for Russia to continue exporting"

ec.europa.eu/commission/pre…

3-19
With 4+ months to go until the prohibition on EU insurance, what is happening?
The WSJ reports that "Russian shipments to Western Europe have fallen by two-thirds since the beginning of the war"
So: from abt 1.2 million barrels a day (mbd) to about 0.4 mbd but...

4-19
China's imports went from 0.67 million barrels a day (mbd) in February to 1.13 mbd in June, and India's imports went from close to zero in Jan-Feb to about 1 mbd now (source: WSJ article)

So, -0.8 mbd to W. Europe, +1.6 mbd to CN+IN

5-19
Based on these trends, an expert interviewed by the WSJ believes it is feasible that Russia could export all the available crude to non-EU, non-US buyers. Presumably this is an estimate for the end of this year, with trends shaping up rapidly.

6-19
That RUS would ship to alternatives was always on the cards, and it is not entirely a negative development, because taking too large a chunk of RUS oil completely off the global market could lead to a massive increase in the price of oil.

thenationalnews.com/business/energ…

7-19
It is for that reason that the recent G7 leaders meeting included a discussion on a global oil price cap.
I highly recommend this piece by @Bruegel_org on the key issues at stake:

bruegel.org/blog-post/poss…

8-19
Those who watched the #Macron behind-the-scenes video of the #G7 meeting may recall the seemingly cautious and non-committal attitude of #India's PM #Modi. Of course, as @Bruegel_org researchers have noted, much hinges on India and China.

9-19
Meanwhile, #Greek and other European shippers are doing plenty of business transporting #Russian #oil. More concerning, the WSJ investigation suggests they could be doing dry-runs for future illegal transactions, in violation of the sanctions when they come into force.

10-19
As noted by the WSJ, European tankers are using ship-to-ship transfers in combination with ships turning off transponders to obscure their position and the cargo’s destination, thus helping potentially to conceal cargo origin as well.

11-19
If that weren't enough to worry about, the Chinese are looking to move in to secure transport means - WSJ reports that ship brokers have picked up Chinese interest in purchasing at least eight oil tankers.

12-19
My view: attempting to enforce a global price cap on RUS oil exports remains our best bet. This should rationally be perceived by all net importers as a win. Other net exporters should in principle not be harmed, they will export at the "non-Russian" market price(s).

13-19
Let's assume CN, IN reject the cap and buy from whomever they wish at whatever price. It remains the case that EU, UK stop buying RUS oil almost completely end 2022. One goal is achieved, which is (almost) no more direct RUS oil weapon against Europe from 2023.

14-19
Rationally, CN, IN should seek the lowest price they can for RUS oil nonetheless, with or without a formal price cap. And currently, RUS oil is sold at discounts in some cases up to 40 (!) USD/barrel. That's good, it compresses RUS revenues.

15-19
So the sanctions so far do make good sense, and it is worth pursuing a global price cap, but even if the cap fails, the overall situation should improve. One should create irritants to Russian exports to third countries but without interdicting them.

16-19
The intended outcome should be to get as much oil to market as possible, including from Russia, but we want to engineer the highest possible transaction costs for Russian oil specifically, to maximally compress the RUS export price, short of them stopping exports.

17-19
So where does this leave the issue of sanctions busting? Obviously we need to know what is going on, so EU governments must monitor and be able to control all EU oil shipping activities. Keeping Chinese or other non-EU ships at bay is also important.

18-19
Prohibiting the sale of EU-owned tankers to non-EU / non-US clients is a measure that ought to be evaluated. Again, we want high transaction costs. The trade must be possible but expensive and complicated. That is a deliberate goal to be engineered and controlled by us.

19-19
Western shipping companies across the value chain must also be subject to enhanced monitoring by and collaboration with our intelligence services, so that our governments have a good handle on developments.