With Pakistan hoping for buying cheaper oil from Russia, there is a bad news for us. Reason? Shipping costs for Russian crude are skyrocketing.
This increase is a result of the ban imposed on the Russian oil, coming into effect from Dec 5 – a move hated by Moscow openly, while threatening to stop selling the commodity to those countries which adhere to that.
In this connection, it was reported Thursday that the European Union (EU) was close to locking a deal capping the sale of the sale of Russian oil at $60 per barrel. A deal spearheaded by the Group of Seven (G7) economies, aims to limit Russia’s revenues from oil sales which are used to finance its war on Ukraine.
Meanwhile, Minister of State Mussadik Malik had led a delegation during visit to Moscow for holding talks to buy the cheaper Russian oil. The move is a result of monetary pressure the government is facing amid the default risk to reduce imports.
Owners who are still willing to load Russian crude are attempting to charge more for the risk. Baltic Sea-to-India rates are being discussed at about $15 million – or $20 a barrel – for loadings after Dec 5. That’s a sharp increase from $9 million to $11.5 million.
According to reports, the surge in costs reflects the challenges faced by suppliers of Russian crude ahead of the deadline when the EU, including some of the world’s top tanker owners in Greece, will stop extending shipping and other services for oil produced by the OPEC+ nation.
Fewer available ships and the need for Russian oil to be diverted from traditional buyers in Europe to new ones in Asia and the Middle East are also contributing to higher rates.
What are the effects?
The exorbitant freight is in turn eroding the value of Russian crudes. Participants in the global shipping market are also waiting for the details on a final oil cap proposed by the G7 countries. In fact, they could exempt shipments from EU sanctions as long as they trade below the price limit.
So, the lack of clarity surrounding exemptions is paving the way for a shift to the so-called dark fleet, or tankers held by undisclosed owners who are willing to continue handling Russian oil despite the threat of sanctions. These ships mostly comprise of older vessels and many with a track record of dealing with sanctioned regimes such as Iran.
The EU move would bar the transportation of Russian oil priced above the agreed limit.
However, the deal is a softer approach to the EU proposed ban on Russian oil. Many fear that such a ban would cause oil prices to skyrocket, as Russia provides some 10 percent of the world’s oil supplies.
That’s why Poland, as well as Lithuania and Estonia, has yet to greenlight the cap, as the country had been pushing to lower the cap as much as possible.
In June this year, the 27-member EU had agreed to ban the purchase of crude oil from Dec 5. However, the G-7 went for setting a price cap in September for the Russian oil amid concerns that a complete ban would send crude prices soaring.
On Wednesday, Russian oil traded at about $66 a barrel with Kremlin saying they would not sell their oil to countries implementing the cap.
They’re hoping that other major buyers — such as India and China — won’t agree to the limit and so will continue to purchase Russian oil.
Both China and India have increased purchasing Russian oil after Moscow’s invasion of Ukraine, benefiting from discounted rates. Their participation is seen as essential if the restrictions on Russian oil are to work.
But it is not likely to happen. India’s Petroleum Minister Shri Hardeep S Puri in September said he had a “moral duty” to his country’s consumers. “We will buy oil from Russia, we will buy from wherever,” he added.
As such, there are growing doubts about the true impact of the restrictions on Russia with experts like Guntram Wolff, director at the German Council on Foreign Relations, describing these as “too late and too timid”.
“This is just a continuation of an unfortunate series of timid decisions. The longer and later the sanctions come, the easier it will be for Russia to circumvent them.”