Never let a manipulative deed go unpunished, as the old saying might be manipulated into saying.
On Saturday, the European Union was patting itself smugly on the back, secure in the knowledge they had accomplished two of their prime objectives. Their Price Cap Commission had come to agreement at last and:
1) capped the price they would pay for Russian oil at $60 bbl, which would in turn
2) hit Russia in the pocketbook as far as war funds to continue the conflict it started with Ukraine
Ursula von der Leyen, President of the European Commission, took a victory lap, declaring proudly
“The G7 and all EU Member States have taken a decision that will hit Russia’s revenues even harder and reduce its ability to wage war in Ukraine. It will also help us to stabilise global energy prices, benefitting countries across the world who are currently confronted with high oil prices.”
So how exactly was that supposed to work again?
…While the EU’s ban on importing Russian seaborne crude oil and petroleum products remains fully in place, the price cap will allow European operators to transport Russian oil to third countries, provided its price remains strictly below the cap.
Okay. I read that as Europe won’t take any Russian oil, but they will still allow European oil companies to trade in Russian oil as long as they move it under the $60bbl cap.
How’s that going?
Well, turns out the immediate big boom isn’t in oil, per se. It’s in the vessels that transport it, especially if you’re…uh…’new’ to the business. Entrepreneurship is alive and well!
The market for old oil tankers is booming, and it’s all down to efforts by Western nations to curb trade in Russian crude.
As Western shipping and maritime services firms steer clear of Russian oil to avoid falling foul of sanctions or harming their reputations, new companies have leapt into the void, and they’re snapping up old tankers that might normally be scrapped.
The European Union banned all seaborne Russian crude imports from Dec. 5, with a fuel import ban to follow in February.
It also banned companies and individuals in the bloc from providing financing, brokerage, shipping and insurance services to ship Russian oil elsewhere if the crude was bought above a price cap of $60 a barrel that came into effect on Monday.
In recent months, ageing tankers have been sold by Greek and Norwegian owners for record prices to pop-up Middle Eastern and Asian buyers taking advantage of sky-high charter prices for vessels willing to ship Russian oil to India and China.
Oh, wait, oh, wait, oh, wait! Middle Eastern and Asian buyers means “not European,” so…they can sell whatever they want to whoever they want whenever they want according to the new rules. How about the law of unintended consequences there, guys!
…With new entrants keen to get a slice of the Russian business, second-hand oil tanker prices have surged, especially for Aframax vessels that can carry up to 600,000 barrels, the standard size used for loading crude at Russia’s Baltic ports.
The price tag for 20-year-old Aframaxes has jumped 86% from $11.8 million on Jan. 1 to $22 million now, according to valuation company VesselsValue.
And, ermagerd, just that fast – the race is on.
Two tankers were heading to Russia on Monday expecting to be filled with Russian crude as a price cap on its oil exports from a coalition of Western countries went into affect.
…Russian President Vladimir Putin and high-ranking Kremlin officials have repeatedly said that they will not supply oil to countries that implement the price cap.
…But while Russia is moving forward on its vow to not sell its oil to countries that implement the price cap, it is not being deterred in finding buyers for its oil. The G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it has to be sold for less than the price cap.
“This is expected to carry on into December as the strong sanctions begin,” said Peter William, trade product manager at VesselsValue. “Russia has potentially found substitute markets for their crude with both India and China increasing seaborne imports from Russia.”
Those old tubs are jingling cash buckets now…
…New ship owners willing to transport Russian oil are cashing in. “Ships earning $80,000 a day in the Mediterranean can make $130,000 a day if they carry Russian oil,” said one ship broker, who declined to be named as he was not authorised to speak to the media.
Crude tanker rates have jumped to highs not seen since 2008, aside from a brief period in 2020 when oil firms scrambled for tankers to store fuel as demand crashed due to the pandemic.
Tanker owners can make more than $100,000 a day for some journeys, said Omar Nokta, analyst at investment bank Jefferies.
…and nobody’s really clear how they’re going to enforce the sanctions. Waters are still kinda muddy about that part, so they’re going to leave it up to the always successful “self-monitoring” and operating in (BWAHAhahaha!) “GOOD FAITH.”
…”The price cap is very confusing,” Fractal’s Philippe said. “We are definitely one of the companies that want to remain in the Russian trade. As businessmen we have to be opportunistic.”
Buyers must provide documents such as invoices to shipping companies or insurers to show they stuck to the cap but it will be essentially down to self-monitoring, with no penalties for providers of shipping services if they operated in good faith.
Should work like a charm, no? They even have a name for them – they’re called the Dark Fleet.
…This dark fleet, which accounts for about 10% of the world’s oil tankers according to Trafigura and other shipping industry sources, has helped Iran circumvent a U.S. embargo for the better part of a decade, and Venezuela since 2019.
At least 21 tankers have switched to shipping Russian oil after previously being used for Iranian shipments, said Claire Jungman, chief of staff at U.S. advocacy group United Against Nuclear Iran (UANI), which monitors Iran-related tanker traffic through ship and satellite tracking.
Good luck controlling that. YOICKS.
Then there are the possible environmental disaster prospects of this liquid gold rush. I can’t wait ’til one of these ancient scows springs a leak, breaks up on a shoal or runs into someone else. You know it’s only a matter of time, as I doubt seriously there’s going to be the time, cash expenditure or consideration given to the safety of these ad hoc ocean fleet vehicles that are given to those of a regularly flagged and operating concern who are, in addition, required to carry things like insurance and highly trained crew members. Professional, quality help does make a difference.
All in all, it’s going to be interesting watching it unfold, from every angle. Did the EU and G-7 out-clever themselves? Possibly.
There’s nothing like when a plan comes together.
Discussion about this post