Last week in the Russian press: ‘Ceiling price for Russian oil’

Hazal Lean

Again, a selection of two articles. The first is of great importance as it not only falls on the agenda, but also considers an extraordinary development, the decision of the G7 countries to impose a ceiling price on imports of crude oil and petroleum products from Russia, with its consequences. As far as I can follow, an article that evaluates the developments so thoroughly before and after has not been published in Turkish, at least until now. I am translating almost the entire article; but it should be added that Russia is aware of the suffocating situation that will arise with the advance price application and plans to close it with extraordinary discounts. In fact, what was going to happen was already clear; The Central Bank had predicted Ural oil prices as $60 in the first of the two future scenarios (which I also emphasized at the time) in the middle of last month, and $40 in the second (in the negative scenario). In other words, the Bank tacitly accepted that a certain rate of profit would be achieved even at a minimum price of $40 a barrel. Last December, Energy Minister P. Sorokin announced the cost prices of crude oil as “in the range of 15-40-45 dollars”. Far from increasing the cost after the sanctions, it must have approached Sorokin’s lower limit. In this case, it can be accepted that the decrease in Russia’s energy revenues will not be destructive. But this will give the opposite result for Europe. It doesn’t matter to the USA, Britain, Canada and Japan though; As I have written several times, where the two horses of the troika go, the third goes, even if it is its destruction.

The second post is from EADaily. I. Levitas evaluates the events of the past week with his unique needlepoint style; however, what caught my attention and made me decide to translate it is the metaphorical similarity it establishes with the 1812 Battle of Borodino.

‘Ceiling price for Russian oil’

Bringing together the world’s most industrially developed countries, the finance ministers of the G7 agreed to set a ceiling price for Russian oil at the online summit meeting on Friday. According to the G7 joint statement, the limitation was introduced to reduce Russia’s capacity to finance its arrivals and military activities in Ukraine, as well as to reduce their impact on the rise in world energy prices. …

EU members agreed on 30 May to embargo oil and petroleum products from Russia by sea within the scope of the 6th sanctions package. The ban took effect from June, but a transitional period was introduced for contracts concluded before the embargo and for one-time purchase agreements in the spot market (until December 2022 for oil and February 2023 for petroleum products).

Russia’s oil and petroleum products supply to the G7 countries amounted to 214.7 million tons versus 109.5 billion dollars. This constituted 68-70 percent of total exports to the world market. Exports of crude oil and petroleum products last year were 37 percent of Russia’s total exports, according to Federal Customs Administration (FTS) figures. FTS stopped publishing these statistics as of spring. …

The G7 joint statement states: “We reaffirm our common political intention to impose a worldwide ban on services that allow the sea transport of crude oil and oil products produced in Russia. The provision of such services will only be permitted if oil and petroleum products are procured at or below (the limit price) at a price to be determined by a broad coalition.” … According to data from the Institute of International Finance (IIF), about half of the Russian oil currently leaving the ports is transported by tankers owned by Greek shipowners. 90 percent of the world’s tankers are insured with the help of the International Group of P&I Clubs in London. Until the Western sanctions, the EU, USA and Britain carried two-thirds of Russian oil sold on international markets. …

The G7 finance ministers plan to introduce the price cap at the same time as the EU sanctions on Russian oil (December 5). All EU countries will have to agree on such a change in the terms of the 6th package of sanctions.

Bloomberg wrote at the beginning of July that the USA and the EU are planning to limit the sale price of Russian oil to third countries at the level of 40-60 dollars per barrel. The average price of Russia’s Ural brand oil was $78.4 per barrel in July. Following this, Japanese Prime Minister Fumio Kisida announced that the G7 would establish a mechanism that would halve the price of Russian crude oil. …

According to Deputy Prime Minister Aleksandr Novak’s statement on September 1, the Russian authorities may completely cut off the supply of oil and oil products to the G7 and its allies in response to the decision to impose a ceiling price. Novak called this project “total nonsense” and “interference with market mechanisms”. Novak added that attempts to limit oil prices will “lead to the destabilization of the oil industry and oil market”, and that European and American consumers will pay the price first.

Vladimir Putin said on 20 July that western countries were “entangling the noose in which they were entangled in Russian gas” and that as a result, prices would “rise”. As of September 2, Brent brand oil prices are at the level of 97 dollars per barrel; this is substantially below the peak prices in March and June (which was then $120 a barrel) but above the prices at the beginning of the year ($78-90 per barrel in January).

D. Medvedev, the former prime minister of Russia and Deputy Chairman of the Security Council, said that if the prices were limited, the oil in the market would “decrease significantly” and the prices would be “much higher”, $300-400 per barrel. Novak also warned that if the limit prices determined by the West are below the production cost, they will not work at a loss.

US Deputy Secretary of State Victoria Nuland admitted on July 22 that a full ban on Russian oil imports would cause prices to skyrocket and Moscow would make more money from selling to other countries, India and China. That’s why he said he was in favor of price caps: “This way, the Russians will be able to get a very small fraction of the profits for their market presence.”

But German chancellor Scholz stated that the border price application will only work if this practice spreads all over the world and gains the support of not only the G7 countries but also other big buyers. For example, in May 2022, China and India tripled their purchases of oil and petroleum products from Russia compared to May of the previous year, reaching a total of $8.3 billion. According to data from The Wall Street Journal, western government officials do not expect these two major importers to agree to price containment. Turkish President Erdogan agreed to develop cooperation in the field of energy between the two countries during his meeting with Putin in Sochi a month ago. In this context, Turkey is one of Russia’s largest buyers of petroleum products: it bought 3.7 billion dollars of oil in 2021.

Apart from all these, a significant reduction in Russian oil can be expected for countries that do not agree with the G7 decision. According to Reuters’ data, on the eve of the entry into force of the EU embargo on imports of Russian oil and petroleum products, the discount in Ural oil reached $18-25 per barrel for Brent brand oil, and reached $30-40 in the spring. …

According to a report by Reuters in June, if Western countries refuse to insure tankers carrying Russian oil, their new insurer will be the Russian National Insurance Company (RNPK), owned by the Central Bank. But there are difficulties in recognizing insurance and reinsurance to be offered by Russian insurance companies and this state company, according to a report by the Central Bank in August. These difficulties are related to the lack of ratings of Russian insurance and reinsurance companies in international ranking agencies. …

In the Central Bank report, it is stated that in order to solve this problem, it is necessary to work on the issue of recognition of Russian rating agencies and to regulate relations with reinsurance companies of friendly countries at the market level. … (T. Dzyadko, I. Tkaçov / RBK, 2 September)

‘Nothing new on the Western Front’

“There is nothing new on the Western Front”. This is the motto of the century, and also of every day. Besides, where have you seen a madhouse change?

  1. According to the news of the Kherson SBU department, based on the secret documents of the Kherson SBU department, the Ukrainian intelligence conducted a special operation, including order letters, to prevent the Ukrainians from obtaining the citizenship of other countries: “The most dangerous trend is that Ukrainian citizens, potential as a result of obtaining the passports of neighboring countries (Russian Federation, Romania, Hungary, Poland) that may claim a part of our country.”

They know what they’re doing. Half of the country currently does not have a relationship with Ukraine.

  1. Another cruise ship has arrived in Scotland, where Ukrainian refugees are temporarily housed, The Scotsman newspaper reported. Earlier, it was announced that the Amsterdam city council decided to temporarily place at least 1000 people on a ship, as there was no room left in the country.

Ships were fine, they said. What a pity. They will be scrapped after six months of use by refugees.

  1. Ukrainian Foreign Minister Dmitriy Kuleba expressed his satisfaction for the arrival of his Danish colleague Jeppe Kufod in Kiev. “Since the time of the Vikings, Ukrainians and Danes have been stronger together,” Kuleba wrote on Twitter.

I am prepared to pay Kuleba a million if he can show that any manuscript from the 8th-9th centuries (Viking times) includes the expression “Ukraine”. …

  1. Zelenskiy: “If Ukraine had the Zaporoje nuclear power plant, it could supply electricity to Italy.”

If there was a mushroom in his mouth, it would be called a garden, not a mouth. …

  1. The finance ministers of the G7 countries have confirmed their intention to… Thus, the G7 countries want to deal a blow to Russia’s revenues.

“The arms of the warriors were weary of slaying, and a mountain of bloody corpses stood in the way of your cannonballs.” [Lermontov’un Napoleon’a karşı Borodino Savaşı’nı anlattığı aynı adlı destansı şiirinden — H. Yalın.] But the arms of the G7 and EU fighters do not tire of inflicting blows on Russia; neither the real mountains of bloody corpses of Ukrainians and Russians can hinder their cannonballs of sanction nor the metaphorical corpses of their own compatriots frantically trying to escape from this square where there is no war. (I. Levitas / EADaily, 3 September)