Russia 's economy is struggling, but the commodities giant can still raise prices on its flagship products.
Russia’s Urals crude hit $60 a barrel on July 12, surpassing the ceiling set by the G7 last year in an effort to curb Moscow’s revenues, according to price reporting agency Argus Media. This is seen as an economic victory for Moscow and a blow to Western sanctions efforts.
The $60/barrel price ceiling was imposed on Russia by the G7 countries to achieve two goals: to limit Moscow's energy revenues from pouring into the conflict in Ukraine and to still allow Russian oil to continue to flow into the world economy, thereby curbing hot inflation.
The price cap has hit Russia’s coffers hard this year. The country posted a current account surplus of $5.4 billion in the second quarter of 2023, a 93% drop from a record surplus of $76.7 billion in the same period last year, according to central bank data released on July 11.
However, Russia's flagship Urals crude oil price broke the price ceiling on July 11 to reach $60.32, the highest since mid-November 2022, according to S&P Global's commodity insights report.
Argus Media data also showed that Urals crude rose to $60.78 a barrel at the Black Sea port of Novorossiysk on July 12. Prices for the product at the Baltic and Novorossiisk ports were $62.22 and $63.22 a barrel, respectively, on July 13, according to Reuters.
The price of Russian oil above the ceiling price is causing headaches for top buyers of Russian crude, especially India.
India became a big buyer of Russian oil after the European country sparked the conflict in Ukraine and was hit with Western sanctions. Photo: NY Times
“Indian banks have been extremely cautious in the past few months for fear of sanctions. They have asked refiners to prove that the spot price for their cargo is below $60 to be able to make payments,” said Vandana Hari, founder of Vanda Insights, a Singapore-based global energy market intelligence provider.
If the Urals surges above $60 again, Russia and its oil buyers will have to increasingly use non-Western insurers and tanker operators to avoid punitive action from the G7 and EU.
“Russia may have to offer deeper discounts to continue to attract buyers in Asia, or middlemen will need to cut their profit margins,” Ms. Hari added.
The move means Russia will have to rely more on its own tankers and services, or those of so-called friendly countries, said Vivek Dhar, head of energy and mining commodities research at the Commonwealth Bank of Australia.
However, OPEC+ producers may find it difficult to replace these Western tankers and services, Mr. Dhar added.
“We are closely monitoring the market for potential violations of the price ceiling,” the US Treasury said in a statement .
Nguyen Tuyet (According to Bloomberg, Business Insider, Reuters)
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