Oil price cap

The Bell

Limits on Russian oil unlikely to pose critical threat to economy

This week sees the start of several new restrictions on Russian oil exports. An embargo came into force Monday that blocks Russian seaborne oil supplies to Europe. Moreover, on Friday evening, the European Union finally agreed on an important accompanying measure — a price cap on Russian oil that companies from China and India will be expected to observe if they wish to retain access to Europe’s insurance and shipping services.

  • For typical petrostates like Russia, this is, at the very least, unpleasant news. The country is the world’s leading oil exporter and ranks third in global oil production. Russia gets about a third of its revenue from selling oil and gas (sales of crude oil and petroleum products made up 37% of Russia’s overall goods export last year). The oil embargo and price cap are seen as important weapons to prevent Russia from financing its war in Ukraine.
  • However, rising energy prices caused by the war play into Russia’s hands and the country can compensate for any restrictions thanks to increased oil and gas revenues. According to figures from the Finance Ministry, those revenues were up 34.2% in the first 10 months of this year.
  • The G7 countries and Australia have agreed on a price cap of $60. However, this will not be a shock for Russia: it’s exactly what budget rules coming into force next year plan for the price to be. The Western countries will review the price cap every two months, but it must remain at least 5% below the average market price for Russian oil.
  • The big question is: how hard will Russia’s revenues be hit? Russia’s energy revenues have been at the center of attention ever since the invasion of Ukraine. Many commentators are convinced that Russia is funding its war directly from its oil and gas exports. “If we’re buying Putin’s oil, we’re paying for his war crimes,”former NATO General Secretary Anders Fogh Rasmussen wrote earlier this year.
  • In the spring, the U.S., Canada and Britain imposed an embargo on Russian oil. But Western companies quickly realized that this was an ineffective measure against Russia, because energy prices rose and the Russian budget got even more money. From Dec. 5, the EU is introducing not just a ban on Russian seaborne oil imports, but also restrictions preventing European companies from transporting or insuring Russian oil. Therefore, to prevent price rises, the G7 countries and Australia simultaneously agreed on a price cap.
  • A combination of the price cap and a 2 million barrel fall in daily oil production could cost Russia $20 billion in lost oil exports every year, according to Marcel Salikhov, director of the Institute of Energy and Finance. “However, this is not some kind of huge loss that will stop all exports,” he added.
  • After the price cap, Russia will have to sell oil to China and India at an ever greater discount. But, even if these discounts turn out to be substantial (at present it’s hard to predict their exact size), this will not be catastrophic.
  • The price cap is also necessary to enable European shipping companies to continue transporting oil (currently they serve 50% of the global market). However, Russia can find ways around those restrictions. According to the Financial Times, Moscow is assembling a “shadow fleet” of old tankers. And Salikhov said Russia could provide state guarantees to insure tankers and their cargoes. For India and China, it is fairly unimportant who will pay out on any insurance claim.

Why the world should care

Western countries and their allies hope that these new restrictions will hit Russia’s ability to raise money. For now, though, it’s premature to suggest they could have a big impact on the Russian economy, or even put much of a dent in energy revenues.

On-air blunder causes trouble for Russia’s main independent TV channel

Alexei Korostelev, a presenter on Russian independent TV channel Dozhd was dismissed last week after he said on-air that “we hope that we were able to help many soldiers, for example with equipment and basic amenities.” That phrase — which some took as an admission Dozhd was sending supplies to Russian soldiers fighting in Ukraine — led to a legal probe into the media outlet in its adopted home of Latvia, as well as a bitter discussion about the high stakes for independent journalists who have fled Russia.

  • Korostelev was speaking on a news broadcast about the number of conscripted men from a small town in the Urals. According to their wives and families, the men were not properly trained before they were deployed at the front, they had no weapons other than machine guns and, after coming under fire, they received neither help nor reinforcements. In a bridge between items, Korostelev asked viewers to send information about problems in the Russian army to a special mailbox.
  • A few hours after the broadcast, Dozhd’s editor-in-chief Tikhon Dzyadko wrote that the channel was not helping the Russian army with equipment. The following day, Korostelev was fired. The journalist himself responded by saying he was against the war and had never asked viewers to send money to help the army. He added that he wanted to help conscripts by telling their stories. “I have no objection to my dismissal if it helps the channel,” he wrote. Over the weekend, two of his colleagues announced that they were resigning in protest at Dozhd’s treatment of the presenter.
  • This isn’t Dozhd’s first scandal since it decamped to Latvia after the outbreak of war. In August, Dozhd presenter Yekaterina Kotrikadze interviewed Riga’s mayor Martins Stakis. Kotrikadze asked about the demolition of Soviet-era monuments in the Latvian capital and suggested they were valued by the city’s residents. This was not well received. Renowned director Alvis Hermanis called for a ban on Dozhd journalists working in the country.
  • Korostelev’s fateful phrase is causing the channel further problems. Dozhd is registered in Latvia and the bulk of its editorial staff are based in Riga (two other bureaus work in Tbilisi and Amsterdam). After Korostelev’s show, Latvia’s regulator fined Dozhd 10,000 euros for showing a map that included Moscow-annexed Crimea as part of Russia and for referring to the Russian army as “ours.” This is the second fine in six months; a third could prompt the withdrawal of the channel’s broadcasting license. Details of the first violation are unknown.
  • Korostelev’s words, and their consequences, also whipped up a storm on social media. Some argued that dismissal was too high a penalty for an error live on air from a journalist who had worked at the channel for eight years. Korostelev’s supporters included many independent Russian journalists. Other commentators believe that Dozhd has no place in Latvia because it “supports” the Russian army — the country’s Defense Minister Artis Pabriks is among those who hold this position.
  • Dozhd had to move to Latvia this year after Russia suspended the channel following the passage of wartime censorship laws. Latvia has since become a refuge for many independent media outlets covering Russia: apart from Dozhd, they include the BBC Russian Service, Meduza, Kholod, Deutsche Welle and Radio Liberty.

Why the world should care

Many Russian journalists who were forced to leave the country because of censorship cannot return. In their homeland, they face criminal charges. Sacking a journalist for a mistake, albeit a serious one, can put their safety at risk in this new media environment.

Russia bans books mentioning LGBT issues

Russian shops are clearing the shelves of any novels featuring LGBT characters for fear of falling foul of “gay propaganda” laws, while libraries are hiding texts written by “foreign agents,” a Soviet-era term used by the Russian authorities.

  • Russian President Vladimir Putin signed into law Monday a draconian “gay propaganda” bill. In effect, the law bans any mention of LGBT people. And lawmakers never specified how “propaganda” differs from “demonstration” – meaning that, among many other consequences, booksellers have a serious problem. The vague wording prompted some stores to start removing any book from sale if they even mention the LGBT community. For example, online store Labirint hid Hanya Yanagikhara’s novel “A Little Life,” books by Andre Aciman (including “Call Me by Your Name”) and works by Rainbow Rowell, who is known for her young adult fiction. Independent publisher Popcorn Books, which specializes in young adult literature, has completely halted the publishing or sale of any book with LGBT links.
  • Eksmo-AST, Russia’s biggest publishing group, fears the new law could put up to 50% of books published in Russia at risk of confiscation.
  • Some believe the law may even be aimed at LGBT literature. This year, the novel “Summer in a Pioneer Tie,” which tells the story of a gay romance at a Soviet-era summer camp became immensely popular. But it also aroused hostility: one deputy from the Khabarovsk region even ripped up a batch of the books on camera.
  • Books written by “foreign agents” are also now problematic for booksellers. Such titles are already disappearing from Moscow’s libraries and, in some cases, are wrapped in opaque covers. In some stores, books by “foreign agents” are hidden on the shelves with their covers turned away from view.

Why the world should care

The disappearance of some books is another manifestation of the censorship that has gripped Russia since the start of the war. Today, the Russian authorities are only willing to tolerate “patriotic” content that elevates themes of Russia’s greatness and emphasizes what officials refer to as “traditional values.”

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