Why Russia's Urals Oil Price is Rising Despite G7 Cap and Decline in Demand?
© Sputnik / Maksim Bogodvid
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Russian Urals oil rose above the $60 limit set for it by the G7 countries on July 12 for the first time since the introduction of the price ceiling for Russian crude.
Urals oil cargoes loading from Baltic ports and Black Sea Novorossiysk on Thursday were at $62.22 per barrel and $63.22 per barrel, respectively, according to Western press. The price is rising despite the declining global demand and Western sanctions against the Russian energy market.
"Why is this happening? Because the industry is Russian and the industries of our partners have been adapting to new circumstances. They were learning to work in new conditions, build logistics, pay for freight, and pay for insurance. Under all these conditions, the need to give large discounts has already disappeared given that everyone has already adapted to the new circumstances," Stanislav Mitrakhovich, expert of the National Energy Security Fund and researcher at the Finance University under the government of the Russian Federation, told Sputnik.
Meanwhile, Russia's oil production is expected to remain steady, as per the International Energy Agency's (IEA) latest report. The agency noted that oil production in June remained at the same level — 9.45 million barrels per day — "as a decline in exports was offset by higher domestic refinery runs."
The expert explained that Russia's revenues have somewhat declined in comparison with 2022 – when energy prices went through the roof – but not because of the much-discussed G7's price caps. It was largely caused by the European Union's embargo on Russian oil and petroleum products. Despite Russia finding alternative markets, it took time to redirect oil flows. One has to pay for freight and insurance services, the expert highlighted.
That is why the price of Russian oil at the port of the recipient can be higher than $60 per barrel by over $10 as the cost of transportation, freight and intermediary services is included, he added.
"If we take Indian statistics, for example, over the past month they wrote that Russian oil cost about $68," he continued.
Presently, Russian oil accounts for about 40% of all India's imports, while before the start of the Ukraine conflict, its share was less than 2%, the Indian edition notes. India has become the largest buyer of Russian oil shipped by sea, surpassing even China. Oil imports from Russia to India in the 2022-2023 financial year increased 14 times from $2.2 billion to $31.02 billion year-on-year.
Price Cap Doesn't Work
Previously, the G7 imposed a cap on prices to cut Russia's oil profits while at the same time ensuring oil inflows were sufficient to fight inflation. One might ask whether the caps worked given that inflation is continuing to haunt the US and most of Europe while the price of Russian oil is going higher than the limit set by the G7.
"The Western sanctions regime was primarily adopted in order to force Russia to change its political course," said Mitrakhovich. "We can see that none of this happened. There were no catastrophic consequences for the Russian economy either. That is, we have neither big inflation nor big devaluation. No '200 rubles per dollar' as Biden promised. We do not have total unemployment, we do not have critical technological limitations (…) That is, the situation is far from being able to say that the sanctions have achieved results."
The expert pointed out that Russian oil revenues are still quite high even though they have decreased in comparison to 2022. If one compares Russia's crude revenues with 2020 or 2021, then, in fact, the nation is approximately at that level in terms of income, comparable to 2021, as per Mitrakhovich.
The expert also highlighted that in general the current fall in Russian oil revenues would not cause any pain for Russia. To illustrate his point the expert referred to the resilience of the Russian economy during the COVID pandemic when oil demand reduced globally, sending energy prices down.
"We survived COVID: the oil industry, and the budget, and the national economy, and the political system. Well, that means we are experiencing it now. When compared to 2022, of course, there is a reduction, but again it is far from causing the country to fall apart or the economy to burst at the seams," Mitrakhovich concluded.
