What Can Russia Do to Sell Its Unwanted Oil?
International Trade attorney Antonia Tzinova spoke with The Economist about the continued global impact of sanctions on Russia's energy sector. Two days before Russia invaded Ukraine, a German-flagged vessel left the Russian port of Primorsk loaded with 33,000 tonnes of diesel. It failed to deliver them. When it reached Tranmere, a British oil terminal, on March 3, 2022, the dockers refused to unload the freight when they learned where it had come from. Similar boycotts have sprung up elsewhere.
The partial embargo of Russia has similarities with the blockade of Iran in the 2010s, which led Iran to create a new system for smuggling oil. Russia is unlikely to take a leaf out of Iran’s book, mainly because, for now, it doesn’t need to. The penalties imposed on Iran include secondary sanctions that threaten huge fines for third-party banks dealing with the country. That makes overtly buying its oil risky.
By contrast, Russia faces a weaker embargo. Only the United States has banned oil imports from the country, and it did not buy much to begin with. On March 25, 2022, Germany said it would cut its purchases by half, but it is unclear when that would start. Sales transmitted over pipelines, which are less conspicuous than shipments and represent about 1m of Russia’s total exports of 7.9m bpd, are still flowing. There are no secondary sanctions.
Instead, seaborne exports have cratered because Western buyers, such as big energy firms, fear a public backlash. They also face financial and logistical headaches as cautious banks cut credit, ship owners struggle to obtain insurance and freight costs soar.
And each time sanctions are tweaked, compliance staff must study hundreds of pages of ambiguous legalese, making many Russian deals hardly worth the hassle, Ms. Tzinova commented. As a result, Urals crude, the grade pumped out by Russia, is currently trading at a discount of around $30 a barrel. One trader expects the gap to hit $40 within a week’s time.
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