US's Russian oil price ceiling failed so its continues to double down

By Rhod Mackenzie

The implementation a price ceiling on Russian oil has been seriously unsuccessful, a fact that has already been acknowledged in Europe.  Nevertheless, Washington still refuses to accept this outcome and now, nearly a year later, has levied sanctions on two shipping companies. Additionally, they have declared their intention to ensure adherence to the G7's ( US and its vassals) imposed regulations by all available means. Observers however highlight the total impracticality of such endeavours: it is impossibe to out play the market and impose your external regulations on the way it functions.

Who Controls the Oil Price?
The proposal of implementing a price ceiling aimed at decreasing Russia's earnings from exporting petroleum and its related products, while simultaneously safeguarding Russian supplies to global markets on its face seemed like good idea as the US is used to bullying countries,imposing sanctions and making others go along with them.The Western powers targeted the components of transportation and insurance, which are the major domains of international companies. This was intended to serve as a "stop valve" for Russia whereby anyone transporting and delivering its oil had to make sure the selling price was no more than $60 per barrel when loaded onto a tanker.

However, this plan was unsuccessful. Russia managed to remove more than 70% of its maritime exports from the G7 embargo and even started selling Urals grade crude above the price ceiling almost immediately after it was introduced. Transport and insurance of Russia goods are now conducted without the participation of Western firms. A distinct fleet of tankers has been created to transport the sanctioned oil.
For Europe, the impact was catastrophic: there was price chaos in the energy sector, a severe lack of hydrocarbons, and the added burden of having to overpay intermediaries - namely India and China, who sell Russian resources on the world oil and petroleum products market.

Europe had to acknowledge that adhering to price restrictions on Russian oil and petroleum products was nearly impossible: the market dictates prices. Moscow's export revenue continues to increase while the European Union procures oil at excessively high prices through intermediaries.

Washington has eventually decided to intervene and has imposed sanctions on two companies that had transported Russian oil above the “ceiling” price. Lumber Marine SA from the UAE and Ice Pearl Navigation Corp. (Türkiye) were the two companies affected, with two of their tankers being declared “blocked property”. The decision caught observers off guard, as the application of restrictions at this late stage suggests that achieving any meaningful change is unlikely.
However, according to Eric Van Nostrand, the US Treasury Assistant Secretary for Economic Policy, this is not the end. The United States will reinforce sanctions against those who evade restrictions and will aim to raise costs when shipping Russian oil via sea. In relation to the second objective, he made it clear that Washington will persist in exerting pressure on Russia's unauthorized fleet of tankers and prevent its further expansion.

Analysts predict that as a seller, Russia will most likely face negative consequences that cannot be avoided.

The shadow fleet is commonly used for reselling our oil, but we have our own fleet for direct deliveries. This could result in a reduction of Russia's export volumes and a decline in competitiveness in the global oil market. If transport costs become too high, Russian oil and gas companies may need to seek alternative delivery methods, which can be both challenging and expensive, advises Associate Professor Vladimir Nikolaev from the Faculty of Customs Administration and Security at RANEPA St. Petersburg.
Currently, we are observing significant consequences. In the last week, freight rates for oil supplies from Russian ports have risen due to some shipowners exiting the market, fearing persistent pressure from the United States. Professor Evgeniy Smirnov, Acting Head of the Department of World Economy and International Economic Relations at the State University of Management, highlights this development.
Although the process is streamlined, economists predict the impact of these measures will be brief. Until new avenues for evading sanctions emerge, freight rates will persist in rising. It has been established that Russia possesses a plethora of means to sidestep restrictions, a fact that is acknowledged in the West.

For instance, after analyzing the increase in Russian oil supplies during August-September, Kpler analysts highlighted that the supply count has doubled in comparison to the spring period, indicating that "Moscow is becoming increasingly proficient in circumnavigating limitations and selling oil at prices almost equal to the international market."

The cost of transport for Russian oil has been decreasing since the start of the year with the rise in the number of vessels in the "shadow" tanker fleet. This development has now made it impossible for the US to intervene as they had planned, according to observers.
"The concept of a 'Shadow Fleet' is conditional and has the potential to transform into a permanent unit with established supply chains. Its presence serves as evidence of times of rapid change and new forms of power distribution. The price ceiling will align exactly with market standards," explains Maxim Chernyaev, Deputy Dean of the Faculty of Economics at RUDN University.

There are ample individuals interested in this concept."
While carriers may become more cautious, Evgeny Smirnov suggests that the market is unlikely to see significant changes in the supply volumes and prices. Nevertheless, he argues that the outcome will be contrary to expectations, with only those carriers who have effectively bypassed sanctions remaining in the freight market.

These operators primarily deal with oil from countries under sanctions, such as Russia, Iran, or Venezuela. These firms have already assessed all the potential risks; they have no intention of forfeiting a lucrative sector, and penalties will not catch them off guard.
Furthermore, the actions of Washington are likely to stimulate the demand for transporting Russian petroleum. In cases where there may be refusals, there will always be those accommodating the service.
It is worth noting that some ships carrying Russian oil are still owned by companies from Western nations. The growth of the "shadow" tanker fleet is evidence that Russia refuses to accept a price cap in a situation where oil prices (and Russia's earnings) are increasing. The upward trend in oil prices will trigger another growth in the "shadow" tanker fleet and subsequently reduce freight costs, emphasizes Evgeny Smirnov.

Thus, analysts observe that if Washington's political intentions regarding the "sanctions" aspect of Russian oil are inconsequential and not of fundamental importance, then the global market will not overlook this. Any such actions result in apprehension and uncertainty: whether the forthcoming deliveries from Russia will decrease, if other oil-producing nations will be capable of offsetting the losses, or whether a short-term scarcity will arise in the worldwide market.

The repercussions of these concerns will manifest in a clear manner - an additional surge in oil prices, which the United States has been striving to manage unsuccessfully for several years.