Image credit: Reuters/Maxim Shemetov
September 08, 2022
Russia Is Making a Killing Selling Oil. A New Plan May Finally Stop That.
U .S. diplomats have spent months hawking a plan to cap the price of Russian oil cargoes. Last week, they finally won the endorsement of several other big democracies. But much about the plan remains unsettled. Its goal is to cut Russia’s energy revenues in order to degrade the Russian military machine, all without hurting global consumers. Doing so will be a tough balancing act, particularly as the energy price spike in Europe and globally worsens and the economic outlook weakens and segments.
To succeed, the G7 needs both major emerging-economy buyers and Russia to at least partly comply. The pitch to non-G7 buyers of Russian oil such as India and China is even cheaper fuel than they are currently getting, without elevated sanctions risks.
The plan was endorsed Friday by the G7, whose members are Canada, France, Germany, Italy, Japan, the U.K., and the U.S. The European Union participates, too, and also supported the plan. Those countries can’t direct the price of Russian oil on global markets. Instead, the cap works by restricting access to the services Russia requires to get oil from its ports to consumers in other countries. Those include insurance, shipping, bunkering and other associated financial services. The G7, especially European countries, dominate such services, especially shipping insurance in the global tanker trade. At present, as much as 90% of associated insurance is booked in Europe, primarily through the insurance syndicates of U.K.-based Lloyd’s. Most tankers fly European flags. And services such as brokering and bunkering are run through Europe.
Read the full article from Barron's.
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