G7’s Russian Oil Tanker Ban Raises Stakes in Economic Standoff
The Group of Seven (G7) plan to ban tankers from transporting Russian oil raises the stakes in the West-Moscow economic standoff, but whether governments will increase punishments for those who skirt sanctions is the real question. The West will need to move quickly, as Russian President Vladimir Putin is working hard to consolidate Moscow’s alliances with India and China.
The European Union and Group of Seven are reportedly discussing plans to ban all maritime services for Russian oil transport, limiting Moscow’s ability to access a large fleet of tankers. This initiative could be implemented by the beginning of 2026 and will eliminate the G7 price ceiling introduced in late 2022. This mechanism gives buyers access to Western shipping and insurance if they buy Russian crude under the cap. The goal was to limit the oil revenues that help finance Russia’s conflict in Ukraine while maintaining global oil supply.
Russian Oil Production Remains High
According to the International Energy Agency, Russia produced 9.3 million barrels of oil per day in October. This is around 9% global production, and more than half of it was exported. G7 countries appear to be willing to further restrict Russia’s oil imports. However, the ban doesn’t mean that they will stop. Russian producers have developed ways in recent years to bypass Western financial systems and sanctioned, using primarily “shadow fleet” tanks.
Shadow Fleet Expands
According to the Centre for Research on Energy and Clean Air’s (CREA) data, in October only 38% percent of Russian crude oil exports went on tankers that met G7 standards. It is possible to expand the shadow fleet, and replace the capacity lost due to the new G7 regulations. There are many old vessels available for Russia and its partners to purchase from Western shipping companies.
Will Countries Continue to Buy Oil?
Russian crude oil is a highly concentrated market. According to Kpler, over 90% of Russian crude oil exports to China, India, and Turkey this year totaled around 3.5 millions bpd. The question is, will these countries continue to buy oil despite the new G7 restrictions? Answer: Probably yes, but at the right price. Russian sellers will have to offer significant discounts on global oil prices in order to compensate for higher risks and increased logistical complexity of dark fleet tankers.
MEASURES WITH A BITE
The success of the G7’s new proposal depends on Western governments’ willingness and ability to enforce these new restrictions. There is also reason to be skeptical in this case. In recent months, Western governments have increased economic pressure on Russia. In September, several G7 members lowered the crude oil price cap to $47.60 per barrel from $60. The EU also announced plans to prohibit imports of refined oil products from Russia starting next year. On Wednesday, the EU agreed to phase-out Russian gas imports until 2027.
Original Article: The ban on Russian oil tankers by the G7 shows teeth but its bite is not certain: Bousso — Marinelink