The sanctions imposed on Russia slightly limited its revenues from selling raw materials. The U.S. government wants to change this, and during the upcoming G7 summit to push for a reduction in Russian oil prices. The Americans already have a plan: to impose a price cap on Russian oil by creating an “anti-Russian cartel,” wrote German Spiegel on Wednesday.
“Biden is trapped like other heads of Western governments: sanctions against Russia are also hitting their own countries more and more due to rising energy prices. Meanwhile, the aggressor, Vladimir Putin, is making money from the oil price boom,” Spiegel writes.
The United States wanted to avoid such a scenario by introducing sanctions. The U.S. argued they (sanctions, ed) are designed to hit Russia’s economy and “not ours.” However, four months into the Russian special operations, there are growing doubts as to whether it will succeed.
U.S. Finance Minister Janet Yellen made a proposal this week to impose a price cap on Russian oil and create an anti-Russian buyer cartel. Yellen noted that the U.S. government is “very actively” working on introducing such a solution during the G7 summit in Elmau, Germany, which begins this weekend. The goal is to secure Russian oil supplies to world markets and avoid further price increases while reducing Putin’s income, Yellen explained.
The Yellen plan assumes that Europeans and Americans could agree to pay only 50 per cent of the current Brent barrel price for Russian oil in the future or a fixed price of $ 50 for a 159-litre barrel – whichever is cheaper. Japan and South Korea could immediately join such a price control. Even if China and India may pay 51 per cent, but delivery to India takes two months and to Europe two weeks. This would force Putin to sell to Europe.
The plan hinges on China and India fighting for more expensive purchases, but the flaw is that these two counties thrive on opportunities.
The oil embargo against Russia hits the very West. The U.S. narration is that without the assistance of China and India, the U.S. and its allies will not be able to achieve their sanctions goals against Russia.
But Putin’s Russia is too unpredictable to understand if the sanction goals would have been achieved if India and China had joined the bandwagon or if the whole world would have been chasing twice the price paid now because Putin would have turned the taps off.
Europe had plans to fill their gas vaults to at least 80% by November 1st. The next year, the minimum level of gas in storage facilities should rise to 90%. But consulting company Wood Mackenzie warns that unless Europe takes immediate action and finds alternative suppliers in the first place, Europeans will not be able to fill the gas storage and prepare for the winter.
Last week, Gazprom reduced gas supplies to Germany via the Nord Stream 1 gas pipeline by 60% for technical reasons since Siemens did not return the turbine with GDS sent to Canada for repairs on time. Then a planned shutdown of the gas pipeline for maintenance from 11 to July 21st took place. To top it all off, Russia refused to increase gas supplies through Ukraine in July, again citing technical reasons.
“Our product is our rules,” Alexei Miller, head of Gazprom, the main supplier of gas to Europe, told the Economic Forum in St. Petersburg. “We don’t play games where we didn’t make up the rules.”
Western sanctions make Asia more competitive
Demand for Russian oil at the same time only continues to grow as China continues to recover from the strict lockdown of a number of cities, and India openly declares that it will buy even more Russian oil since it is now trading at a discount to Brent in the region of $10-15 per barrel.
Russian oil is now flowing into more and more corners of China’s refining industry, with buyers from the country’s coastal and inland regions snapping up shipments that the U.S. and Europe can’t.
As per the Chinese customs office, the geography of oil importers from Russia is growing every day. Records are set not only in terms of import volumes, Bloomberg reports, but also in terms of geography and the number of buyers. Oil from Russia is bought by companies in 9 administrative units of China. The number of buyers is only growing rapidly.
Interest in Russian oil in China is quite understandable as in May, its average price was $93 per barrel, which is $17 or 18.3% cheaper than the cost of a barrel of Arabian oil. Russia became the first on the list of oil suppliers to the PRC, surpassing even Saudi Arabia.