A very deep dive from the Financial Times, November 27:
As western countries prepare to impose a price cap on Russian crude, many of the industry’s norms are being undermined
As an epic oil crash threatened more havoc on a pandemic-stricken global economy in April 2020, the US, Saudi Arabia, Russia and other G20 countries met to thrash out a solution. The co-operation helped end an Opec+ price war and restored stability to the market. Prices recovered.
Two-and-a-half years later, and nine months into Russia’s war in Ukraine, such collaboration on energy between global powers seems a distant memory.
Moscow has weaponised its natural gas supplies to Europe for months and is now actively trying to disable Ukraine’s electricity network. Consumer countries have become competitors as they race to secure scarce energy supplies. Fractures are visible in the decades-old Saudi-US oil relationship. Even in clean energy, leaders such as Joe Biden talk of a new battle to dominate supply chains.
The potential unraveling of the old order in the global oil market will reach a defining moment over the next week when Europe starts to block Russian seaborne crude from the continent — one of the strongest responses yet to Vladimir Putin’s brutal invasion of Ukraine.
The new sanctions will also stop European companies from insuring vessels carrying Russian oil to third countries — unless those countries accept a price for the oil dictated by western powers. In other words, western countries will attempt to impose a cap on the price of oil sold by Russia.
No one can say how disruptive these measures will be. Sanctions imposed on Russia since Putin ordered troops across Ukraine’s border on February 24 have barely dented the country’s oil exports or the Kremlin’s oil income.
But the very principle that Moscow’s geopolitical foes will set the price at which Russia sells its crude is a humiliation for a petrostate that produces more than 10 per cent of the world’s oil and sits alongside Saudi Arabia at the top of the Opec+ cartel. A price-setter would become the ultimate price-taker.
Alexander Novak, Russia’s deputy prime minister, will have a chance to discuss Moscow’s response when he sits down with Saudi energy minister Prince Abdulaziz bin Salman, at another Opec+ meeting in Vienna on Sunday, a day before the European embargo and price cap plan come into effect.
For energy industry veterans, the coming days mark a moment of deep peril for the oil market — and a global economy that still depends heavily on the commodity. Established geopolitical norms have been eroded in the past year, they say, and supply chains that have existed for decades are now being upended....
....MUCH MORE
