LONDON: Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players and a U.S. official told Reuters, underscoring the limits of the most ambitious plan yet to curb Moscow’s wartime revenue.
The Group of Seven countries agreed last month to cap Russian oil sales at an enforced low price by Dec. 5 but faced consternation from main players in the global oil industry who feared the move could paralyses the trade worldwide.
Months of discussions between the United States and those insurance, trading and shipping firms have mollified concerns on their exposure to sanctions but all parties now realize Russia can largely skirt the plan with their own ships and services.
The forecasts on the resilience of the Russian oil trade and details of the discussions between Washington and the global oil and services industry have not previously been published.
Estimates that 80-90% of Russian oil will continue to flow outside the cap mechanism are not unreasonable, a U.S. Treasury official told Reuters.
As a result, only between 1 and 2 million barrels per day (bpd) of Russian crude and refined products exports could be shut in if the country refuses to abide by the cap, said the official, who declined to be named due to the sensitivity of the situation.
Russia exported over 7 million bpd in September.
That could pose financial and technical difficulties for Russia but would also deprive the world of 1-2% of its global supply just as inflation is on the rise and a recession looms.
The United States is aware of some ships changing their countries of origin and trading entities being moved beyond the G7 to order to evade the plan, the official added.
Russia would incur costs from having to conduct longer voyages and being relegated to subpar insurance and financing, the official said, making the United States optimistic Russia will be compelled to sell within the price cap over time.
Industry and policy veterans have seen the limits of a plan which at first appeared to have the entire Russian oil trade in its crosshairs but whose scope could now be greatly diminished.
“In theory there is a big enough shadow fleet to continue Russian crude flows after Dec. 5,” Andrea Olivi, global head of wet freight at commodities trading giant Trafigura told Reuters.
“A lot of these shadow vessels will be able to self-insure, or they will be able to be insured by Russian P&I”, he added, referring to protection and indemnity insurance.
Bank JP Morgan sees the impact of the price cap as muted, with Russia almost completely skirting the ban by marshalling Chinese, Indian and its own ships – whose average age is nearly two decades old – relatively ancient by shipping standards.
That could leave Russian exports in December reduced by just 600,000 bpd compared with September, the bank added.
