moon of alabama

EU Pushes For More Sanctions Which Will Come Back To Bite It
Moon of Alabama, Oct 6 2022

On Feb 22, two days before Russian troops entered the Ukraine, the US and the EU put reams of sanctions onto Russia. They also confiscated some $300b of Russia’s reserves that were invested in the ‘west’. The sanctions had been negotiated between the EU and the US and prepared for over several months. The idea was to bankrupt Russia within a few weeks. The deluded people behind those sanctions had no idea how big and sanctions proved Russia’s economy really is. The sanctions failed to influence Russia in any way but their consequences led to a shortfall of energy in Europe and increased the already high inflation rates. Inflation in Russia is sinking and its general economic numbers are good. The now higher energy prices generate sufficient additional income to completely finance its war efforts. A sane actor would conclude that the sanctions were a mistake and that lifting them would help Europe more than it would help Russia. But no, the US and European pseudo elites are no longer able to act in a sane manner. They are instead doubling down with the most crazy sanction scheme one has ever heard of:

The EU pushed ahead on Wednesday with an ambitious but untested plan to limit Russia’s oil revenue. If the global price of oil remains high, it would complicate the EU’s effort to impose a price cap on Russian oil that was expected to gain final approval on Thursday, after EU negotiators reached an agreement on the measure as part of a fresh package of sanctions against Moscow. Under the plan, a committee including representatives of the EU, the G7 and others that agree to the price cap would meet regularly to decide on the price at which Russian oil should be sold, and that it would change based on the market price. Several diplomats involved in the EU talks said that Greece, Malta and Cyprus, maritime nations that would be most affected by the price cap, received assurances that their business interests would be preserved, the diplomats said. The countries had been holding up what would be the eighth sanctions package the EU has adopted since the Russian invasion of Ukraine because of worries that a price cap on Russian oil exported outside the bloc would affect their shipping, insurance and other industries, the diplomats said. With oil prices at a high, Russia is raking in billions of dollars in revenue, even as it sells smaller quantities. The cap, part of a broad plan pushed by the Biden administration that the G7 agreed to last month, is intended to set the price of Russian oil lower than where it is today, but still above cost. The US Treasury calculates that the cap would deprive the Kremlin of tens of billions of dollars annually.

How do you make a big producer of a rare commodity sell those goods below the general market price? Unless you have a very strong buyers’ cartel that can also that product from elsewhere you can not do this successfully. It is an economic impossibility.

To make the measure effective, and cut Russian revenue, the US, Europe and their allies would need to convince India and China, which buy substantial quantities of Russian oil, to purchase it only at the agreed upon price. Experts say that even with willing partners, the cap could be hard to implement.

Russia has declared that it will not sell any oil to any party that supports the G7 price-fixing regime. That is why neither China nor India nor any other country besides the EU and US will agree to adhere to it. The whole idea is crazy and way too complicate to achieve anything:

Under the new rules, companies involved in the shipping of Russian oil, including shipowners, insurers and underwriters, would be on the hook for ensuring that the oil they are helping to transport is being sold at or below the price cap. If they are caught helping Russia sell at a higher price, they could face lawsuits in their home countries for violating sanctions. Russian crude will come under an embargo in most of the EU on Dec 5, and petroleum products will follow in February. The price cap on shipments to non-EU countries has been championed by US Treasury Sec Janet Yellen as a necessary complement to the European oil embargo. Under the EU deal, Greece, Malta and Cyprus will be permitted to continue shipping Russian oil. Had they not agreed to place their companies at the forefront of applying the price cap, they would have been forbidden from shipping or insuring Russian oil cargo outside the EU, a huge hit for major industries. More than half of the tankers now shipping Russia’s oil are Greek-owned. And the financial services that underpin that trade, including insurance, reinsurance and letters of credit, are overwhelmingly based in the EU and Britain.

This is of course an open invitation to other countries to enter the oil shipping and related financial services businesses at the cost of European companies. China and India will both it to increase their market shares in those fields. Their ships will transport Russian oil to whoever wants to buy it for the market price minus the always negotiable Russian rebate. Greek ships will sit idle or will be sold off while Indian and Chinese and other Asian tankers will be very, very busy. China’s big insurance companies will happily join that new global services business. That European bureaucrats agreed to his stupid US idea, which will foremost hurt European businesses, is another sign that Brussels has given up on having any agency. Today OPEC+, the sellers’ cartel for oil, reacted to the crazy sanctions idea and the upcoming global depression by agreeing to decrease their daily output by 2m barrels. This was not done out of Saudi solidarity with Russia. Saudi Arabia needs oil at above $80/b to finance its budget. Brent Crude, which had fallen to $83/b on Sep 26, has since risen to $93/b. The global demand for oil is around 100mb/d. Should the demand stay up the 2% reduction in OPEC+ production will have significant price effects and $100/b will be in easy reach. But OPEC+ is committed to stable prices, not to significant price increases. During the OPEC+ session today the Saudi Prince Abd’ul-Aziz showed this table:

Since the beginning of the year the prices for all forms of carbon based energy except crude oil have increased considerably. Abd’ul-Aziz argued that the chart shows that OPEC+ is managing oil prices responsibly. The EU is certainly not doing similar. The Biden administration has meanwhile nearly halved the content of the US Strategic Petroleum Reserve. This to keep US pump prices down and the Democrats in power.

Neither is a responsible step to take.

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