How effective are European sanctions?

Are sanctions against Russia really effective? Inevitably, problems resurfaced and the European embargo on Russian oil was extended from Sunday 5 February to include refined products, especially diesel (30% of France’s consumption comes from this country in recent years).

Decided in early June and effective on December 5, the ban on oil imports from Russia has so far concerned only crude oil. But Olivier Gantois, president of the Federation of the French Petroleum Industry, said it was starting to bear fruit. “Russia can only sell some of the products it sells in Europe to other countries. » Result: The IEA estimates that production should be 9.6 mb/d from March, down 2 mb/d from before the Ukraine invasion.

The key role of European insurers

Vladimir Putin has personally viewed Russia’s production cuts as a threat that a world supply shortfall could lead to higher prices. But the analysis found that falling oil revenues are putting increasing pressure on Russia’s budget.

Because of the European embargo plus an unprecedented measure, decided by the European Union and its G7 partners, as well as Australia: limiting the price at which third countries can buy Russian crude oil to $60 (€55) a barrel. To achieve this, the Europeans and their allies prohibited their trading houses, shipowners and insurance companies from offering contracts negotiated at higher rates.

“The role of insurers is particularly important as European and UK companies largely dominate this market.Lionel Ragot, professor of economics at Paris-Nanterre University and member of the Center for Prospective Research and International Information, insists. But there’s very little you can do to contract or ship oil without insurance. »

Refined products will soon be capped

Also, while oil prices are on a downward trend, the Russians are being forced to sell their Urals crude to “Significant price cuts”as Patrice Jeffron, director of the Center for the Geopolitics of Energy and Raw Materials at Dauphin in Paris, puts it.

Urals crude recently hit its lowest level since 2020. And, according to Reuters calculations, it is trading at about a third less than the government projected in the 2023 budget of around $70 a barrel.

In any case, the European Union, its G7 partners and Australia decided on Friday, February 3rd to also limit prices for purchases of Russian oil products by third countries. The European Commission has just proposed a cap of $100 (€91) per barrel for diesel and $45 (€41) for other less refined derivatives such as heating oil.

evasion strategy

Meanwhile, the Russians are looking for a parade. “They proposed that their listed company insure the goods, Lionel Ragot guarantees. They have also significantly increased their tanker fleet to avoid dependence on European shipowners. The agency that monitors tankers has also noted an increase in the number of reported Russian tankers with no final destination and an increase in ship-to-ship transfers. » According to the researcher, Russia is seeking “Break Stream Tracking” Transfer its oil to other ships off the coast of Greece or Cyprus.

In addition, Russian oil may continue to arrive in Europe. For example, since Indian refineries also supply crude oil from Russia, they convert crude oil specifically into diesel for the European market. “The EU and French authorities have clearly identified this risk”, guaranteed by Olivier Gantois.The problem, he explained, is that“The origin of crude oil can be determined by chemical analysis, but not the origin of diesel”.

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