How the West’s plan to punish Russian oil backfired | About That
on this graph you see the price of two different types of crude oil Euro’s oil in red is the Russian stuff Brent oil in blue is the global Benchmark you see how they track almost identically but look what happened when Russia invaded Ukraine about 2 years ago the price split worries about Russian Supply and geopolitical instability sent each price in opposite directions the price of Russian crude plummeted and this big gap would eventually form the Foundation of a novel idea to hamper Russia’s war effort by hitting it where it really hurts cuz Western allies have agreed to put a cap on the price of Russian oil this is the story of the western attempt to Russia’s oil industry and how Russia may actually have emerged stronger for it the first thing to know is that Russia is one of the biggest oil producers on the planet it EXT racts and sells about 11% of the world Supply putting it effectively on par with Saudi Arabia and really only behind the United States last year it produced almost 10 million barrels of crude oil a day that is its single most important source of Revenue and that money buys missiles tanks drones guns and ammunition hit Russian oil and you hit Russia right in the gut we’re talking about income of about half a billion dollars every every day for Russia in hard currency if you wanted to weaken Russia’s economy you really had one Target and it was oil but the world also gets nervous about clamping down on Russian oil because if we all just decided to choke off the supply refuse to buy it you would certainly hurt their bottom line but less oil in the marketplace means higher energy prices for everyone 379 that’s almost a dollar more thanks Putin the aim was to keep Russian oil flowing so there wouldn’t be any price shocks like there were with natural gas but also to um reduce income to the Kremlin so enter the idea of a price cap a plan was hatched about a year and a half ago to impose a limit on how much Russia could charge for its Seaborn crude oil $60 a barrel that was about $24 under the market average so they’d be selling at almost a 30% discount and the goal was to walk this fine line where you cut meaningfully into Russia’s oil revenue and its ability to fuel its war effort in Ukraine but don’t cut deeply enough that oil actually stops being profitable for Russia the world still very much needs Russian oil the West just wanted to shrink its margins now you might be asking why would Russia agree to that like can’t Russia sell its oil for whatever it wants to charge and surely someone will buy it well yes except for one thing for decades Russia has relied on Western shipping infrastructure to move oil on a global scale it’s just easier to use the existing global Shipping Network because everybody uses it Greece for example has one of the world’s largest Merchant fleets it’s a major player in oil shipping it agreed to the price cap in fact the entire G7 group of Nations agreed to the price cap together they’re responsible for ensuring something like 90% of the World’s oceangoing Trade and that’s important because just to give you an example if you want to sail through the Suez Canal you need insurance in a very meaningful way Russian Seaborn oil is financed by the West if Russia wanted to continue to use uh the shipping industry RIT large so ships that have insurance ships that you know are registered then it would have to use it would have to sell that oil underneath the cap that was set by the Western Nations so Russia could continue using registered shipping vehicles with insurance as long as it sold its oil at under $60 a barrel if anyone was caught transporting Russian oil that cost more than that they could be punished but Russia found a way around it all Russia has spent many months and billions of of creating a so-called Shadow Fleet of oil tankers The Hunt is on to buy up the rust buckets of the high seas for transporting Russia’s oil each year there’s number of ships that going to scrap they they’re scrapped because they’re too old and usually under normal circumstances you know reputable oil companies would not even use them because they’re too bad however you know those were the first cheapest ships and the easiest ones to basically either Buy my lease think of it like a kind of parallel shipping network but one where the ship owners operators registration Insurance even locations at any given time are shrouded in mystery and architects of the oil price cap don’t like it we are aware that there is a parallel fleed there’s there’s no denying that and we know that it has also grown significantly which is slightly unwelcome I want to show you something so Bloomberg has done some really outstanding journalism on this Shadow Fleet and how Russia uses it to sell oil on its terms not the wests so we’re here in the Gulf of leonos uh we’ve spent over two hours coming here by boat and we’re here to check out a hub of Russian oil trade so in this snippet Bloomberg’s documentary team is about to witness two ships meeting in international waters to spend a couple of days transferring oil from one ship to the other except they check the GPS transponder signal on the ship receiving the oil and digital tracking shows it floating seven or so kilometers away not at all where it actually is at that moment somebody is doing something to make that ship appear somewhere else this right here is the shadow Fleet you’ve got two tankers that the owners aren’t clear the insurance isn’t clear in terms of the depth of the Insurance the flag is as bad as it gets these are Shadow Fleet tankers and then they report there are more than a dozen similar vessels part of the same Fleet floating nearby either doing the exact same thing or getting ready to the international Maritime organization that regulates shipping worldwide knows this is a problem Canada the United States and Australia have all complained that more ships are illegally turning off their transponders going dark before transferring oil in international waters as a way of dodging sanctions now they’re able uh even under tight sanctions to circumvent those sanctions and actually Supply the markets that they want because these are their own vessels so oil leaves Russia at a declared price of no more than $60 a barrel using the West’s shipping Network at some point the oil might change hands the paperwork the log books get a little fuzzier and by the time time the oil reaches its destination sanctions have gotten harder to enforce the actual sale price winds up being well above the price cap it’s certainly more than the price cap it’s probably closer to 775 a barrel and that price will have its own sort of floating Market depending on where the sort of set price of crude oil is going but it it it’s certainly they’re they’re making a pile of money I don’t think that a single cargo actually traded below price caps so you know it really has have been pretty pretty much a non-event the the price gaps oil continues to move uh Putin keeps making money and we all pretend that we’re doing something about it there are According to some estimates several hundred Shadow Fleet tankers in operation Russia’s economy is now poised to grow at a faster Pace than any G7 Nation that’s because of oil and who would buy Russian oil shrouded in this much secrecy you can see the amount of oil that shipped to Europe uh and the past two years and it’s really fallen off a cliff and then you look at the amount of oil that has shipped to Asia primarily India and China uh and that’s really gone through the roof but once you start moving a significant amount of product outside of that system it we’re blind to it we have no idea frankly how much oil is being shipped what people are paying for where it’s going what it’s being used for and and this poses all kinds of problems Russia has undeniably been been affected by the oil price cap even if Russia continues to make billions a year it is charging less per barrel than it could otherwise and consider how much it’s had to spend circumventing the oil cap every dollar it spends on tankers it’s not spending on tanks we also know that the cost of creating and maintaining this Infamous Shadow Fleet is around $2.25 billion in just one year like if you figure a single T90 Russian tank cost somewhere around $5 million to replace you can do the math $2 billion could have bought 400 tanks but consider what this price cap has compelled Russia to do it has effectively reshaped the shipping industry to its Advantage we don’t know who they are we don’t know what they do it’s everything is gone under under the radar and this is risky because what underpins almost every law we have about how to ship oil through international waters is the fact that if any of that oil spills it is dangerous it is damaging it is very expensive to clean up and the ships Russia has folded into its shadow Fleet they’re often at the end of their lifespans they’re elderly um they’re over 15 years many of them are flagged in jurisdictions which have very low technical uh oversight or any sort of Maintenance so if there’s some kind of failure on board a container leaks oil spills the owners they’re difficult to track the accountability sometimes these ships are registered in countries that don’t even Border Water the insurance questionable if it exists at all one expert told us 80% of Shadow Fleet tankers have no known insurance it’s just a matter of time before there’s some major oil pill somewhere and nobody will be covering that uh cost of cleaning that up experts we spoke to told us Russia’s Shadow Fleet may very well be V violating international law whether it’s laws governing ship registration insurance safety standards or pollution safeguards it’s also becoming more deeply entrenched in the world oil economy and if it turns out this Shadow Fleet is here to stay it’s hard to know how that story ultimately ends
After Russia invaded Ukraine, the West took aim at Russia’s oil sector to hamper Russia’s wartime economy. Andrew Chang explains how Western leaders used oil price caps and shipping embargoes to disrupt a critical source of revenue — and the workarounds Russian President Vladimir Putin found to keep the oil money flowing.
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