«This will allow Moscow to increase exports and budget revenues»
The Joe Biden administration urged the largest commodity traders not to be afraid of deals with the supply of Russian oil, traded within the price ceiling of $60 per barrel. In fact, Washington eventually had to admit the impracticability of the task with two incompatible, mutually exclusive messages — to reduce the Kremlin's export revenues and at the same time not destabilize the global oil market.
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According to The Financial Times, representatives of the US Treasury met with managers of the largest international trading companies Trafigura and Gunvor. Part of the talks took place during the CERAWeek Energy Conference, which took place this week in Houston. «The Americans were actively urging us to resume oil supplies,» one of the managers told the FT.
The fact is that global traders, including Trafigura, Vitol and Gunvor, curtailed (in whole or in part) business with Moscow last year, leaving joint projects with Russian energy companies. They did this for two main reasons: firstly, because of serious reputational risks, and secondly, fearing, in the wake of secondary sanctions, to lose the support of banks that provide them with billions of dollars of credit lines. As a result, Russia today has to rely on smaller traders to get oil to Asia. Moreover, raw materials are often transported on old tankers that do not have Western insurance and look frankly unsafe in the eyes of customers.
As for Washington, which led the G7 initiative to introduce a price limit of $60 per barrel, it has two goals: on the one hand, to limit the Kremlin's income from the sale of energy carriers, and on the other hand, not to prevent the further flow of Russian oil to the market. After all, if there is a deficit on the global market as a result of the absence of Russian oil, this will lead to an uncontrolled rise in the price of a barrel. The duality and ambiguity of the task makes it practically impossible. As traders themselves admit, in reality, the United States has very little control over compliance with the price ceiling conditions, they look at it through their fingers.
“The position of global carriers who refuse to purchase raw materials from Russia at a price not exceeding $60 makes America the affected party,” explains Artem Deev, head of the analytical department at AMarkets. — Oil is becoming more expensive on the world market, and in the United States, in turn, gasoline, one of the cornerstones of social stability in this country. Last year, its cost increased several times: on average, from $1.4 per gallon to $5.5, which caused strong discontent among citizens and forced the White House to justify itself and take emergency measures. In particular, the United States was forced to throw raw materials from its strategic reserves on the market.
For Russia, this story of negotiations between US officials and oil traders promises a direct benefit. For example, the risks of introducing secondary sanctions are partially removed. In addition, Deev argues, there is a prospect that in the future companies in China, India and Turkey will not reduce the volume of purchases of Russian raw materials. And international traders, who previously refused to deal with Moscow, will begin to gradually draw up contracts again. All this will increase exports and, accordingly, budget revenues.
“There are obvious problems with inflation in the United States: in recent months, the process of its reduction has stalled, and without an additional reduction in the cost of energy, price dynamics may become completely unfavorable for the American economy and President Biden personally,” says TeleTrade analyst Alexei Fedorov. — So the softening of the position on Russian oil (even if it does not happen in reality) can be perceived by bidders as a signal to increase the supply of raw materials from the Russian Federation. Against the backdrop of reduced demand due to the slowdown in the global economy, this will send quotes below $80 per barrel of Brent.”
In Fedorov's view, the US also wants to demonstrate that a cap on Russian oil prices is a truly effective sanctions mechanism. And for this it is necessary that Russia remain in the field of Western logistics infrastructure, otherwise (with the complete loss of control over supplies from the Russian Federation by the United States), other countries may follow a similar alternative path. So, despite the seeming benefits of such relaxations, it is very important for Moscow to take the most rigid position regarding the price ceiling, while continuing to create and develop an alternative supply chain.
“The main motive that guides the Biden administration is to prevent a sharp contraction in supply, fraught with an uncontrolled rise in oil prices,” Nikita Maslennikov, a leading expert at the Center for Political Technologies, echoes his colleagues. – The Americans need to keep prices at $80 per barrel, in line with the average annual forecast of the US Treasury and allowing to bring down domestic inflation. Analysts in Washington are well aware of all the risks to the country's economy. In particular, the moment that shale oil production is at its peak, and that it will not be possible to force it. Nothing good for the United States and the recent decision of Saudi Arabia to raise selling prices for oil for consumers in Asia and Europe.”
For Russia, it is important that Brent quotes be kept in a predictable corridor, as this allows better understanding and to control the dynamics of budget revenues from commodity exports. Accordingly, Maslennikov concludes, the current US initiative is clearly in our favor.