U.S. Wants To Deliver Blow To Russia's Oil 'Shadow Fleet'
- 6.11.2023, 13:39
Washington is considering new sanctions.
More than half of Russia's crude oil exports are already carried by tankers without Western insurance, S&P Global data show. This has allowed Russia to increase the flow of petrodollars, as the price ceiling set by the G7 is already largely unobserved. So Washington is looking for ways to make it harder for Russia's shadow fleet to operate, The Wall Street Journal reported.
The U.S. and its allies are discussing how to make it more expensive and difficult for Russia to manage and expand this fleet, people familiar with the discussions told the newspaper. As a first step, port operators have been sent a list of recommendations that could increase costs for Russian vessels. In particular, it is proposed to require them to prove that their insurance is indeed fully financially secured in order to allow them to pass through the relevant territorial waters. Admittedly, it is not clear whether foreign ports will follow the US recommendations, the WSJ notes.
In addition, the newspaper's sources say, new measures are being developed to force oil traders to follow the restrictions already imposed. In October, the US Treasury Department for the first time penalised two tankers for violating sanctions by banning US persons from doing business with them. The owner of one is registered in the UAE, the other in Turkey; the vessels used U.S. financial services but purchased Russian oil at a price above the $60-a-barrel ceiling, the Treasury Department said.
"The need to buy tankers makes it very difficult for the Kremlin to buy tanks," Eric Van Nostrand, assistant Treasury secretary for economic policy, said in defence of the US sanctions measures recently at a conference at the Brookings Institution. He said tougher sanctions enforcement would force Russia to either sell more oil within the ceiling or spend more on logistics to circumvent it.
At first, the sanctions worked as intended. Urals crude was sold at a discount of $40 a barrel to Brent in the winter. However, with the growth of Russia's shadow fleet, which is replenished with old tankers, many of which would otherwise have been scrapped, it has become increasingly difficult to observe the price ceiling. The Kyiv School of Economics estimates that in September the shadow fleet already numbered 180 tankers. If in January 2023 35% of Russian oil was exported without Western insurance, now it is more than half.
In addition, in order to circumvent the price ceiling, traders have artificially inflated the cost of transportation, says an analysis by the Centre for Strategic and International Studies.
Urals prices topped $60 in the summer; the grade now sells for about $74 a barrel, data compiled by Argus Media show. "The price ceiling [at first] worked as planned, but it's now obsolete," said Natasha Kaneva, director of commodity markets strategy at JPMorgan Chase.
All this, along with a number of other factors, including rising global oil prices and a weakening ruble, provided the budget with 1.635 trillion rubles of oil and gas revenues in October - the highest in a year and a half.