Pratik Bijlani –
The cost of transporting Russia’s Urals crude to Asia from the Black Sea port of Novorossiysk has dropped to its lowest level since October, according to Argus Media Ltd. This progress occurs despite Group of Seven (G7) sanctions designed to raise delivery costs and deprive the Kremlin of cash. Instead, Russian companies now receive a higher portion of the revenue from each barrel supplied to major markets such as China and India, which have become Russia’s largest oil consumers after Europeans froze purchases to put pressure on Moscow over the Ukraine crisis.
Currently, delivering a million-barrel Russian Urals oil cargo to north China costs $7.2 million, down $3.2 million since April. The sanctions-related expenses have been reduced by $4 million, demonstrating the ineffectiveness of G7 sanctions in pushing up delivery costs. Since October, several restrictions have been imposed on Russia-linked boats, including Sovcomflot PJSC and other ships in the so-called “dark fleet.” Despite these steps, Russia’s oil is already trading considerably above the G7 price cap of $60 per barrel, at around $75 per barrel at the point of export and around $85 when it reaches China and India.
The US Treasury has recommended further moves to target Russia’s ageing fleet of oil tankers, which let the country skirt the price restriction. However, concerns within the White House about anticipated energy price increases, which could impact domestic petrol costs ahead of the November election, have slowed these suggestions. This private argument highlights the administration’s problem of balancing the weakening of Russia’s war operations while avoiding political backlash from rising fuel prices.
As the Biden administration considers additional actions, the effectiveness of the sanctions and their effects on global oil prices remain uncertain. The key goal remains to reduce Russia’s oil earnings while avoiding negative economic consequences, so maintaining the delicate balance between international sanctions and local economic stability.
Marex Media