Western sanctions against Russia reached new heights on Wednesday after the invasion of Ukraine. The United States has announced restrictions on the country, including “technology exports” in the oil refining sector.
According to the White House, these measures will help Washington achieve its goal of “degrading Russia’s position as a major energy supplier over time.” This initiative marks the most important step ever taken to achieve the sector that is considered the lifeblood of the Russian economy.
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The United States has warned that Russia could block Russian oil if Moscow intensifies its offensive against Ukraine, but the Joe Biden administration is still underestimating the potential dimension of the move in the global energy market. “The choice is on the table, but we need to weigh what the implications will be,” White House spokeswoman Jen Zaki told MSNBC.
Since the beginning of the sanctions on Vladimir Putin’s government, the United States and the European Union have sought to exempt the energy sector from sanctions against the country. Russia accounts for 7.5% of global product exports.
However, this did not prevent the market from already anticipating the effects of sanctions on oil and gas operations. This Wednesday, Brent’s barrel hit a new high of $ 112.93, its highest level since June 2014.
The White House reinforced the message that the country, its allies and partners were not interested in reducing global energy supplies. The purpose of the announced restrictions is still uncertain. Pavel Molchanov’s analyst Raymond James told the Wall Street Journal that the scope was narrow and focused only on the refining sector. He pointed out that the two largest refineries in the country are managed by a government agency and a private sector company with strong ties to the Kremlin.
According to Molchanov, companies depend on import technology, but the impact should be felt gradually. Thus the purification method becomes obsolete.
The scope may be gradual, but the message was clear: in the economic war to stop Russia after the invasion of Ukraine, not even the central axis of the Russian economy will be left.
Fears of turmoil already The International Energy Agency (IEA) announced on Tuesday that it would release 60 million barrels of oil from strategic reserves in the United States and other countries. This Wednesday, the Organization of the Petroleum Exporting Countries (OPEC +) defined an increase of 400 thousand barrels per day in production in April.
But none of this had an impact on the quotes. Russia’s oil and gas are under severe pressure. Companies refuse to buy or carry goods. Banks do not want to finance operations and insurance companies do not provide guarantees for businesses.
Natural gas is up 60% in Europe. Uncertainty about the direction of the deterioration of the Russian economy prevents companies from closing down for fear of not getting paid later. Russia’s central bank has announced the release of $ 26 billion worth of bank balances, a move aimed at guaranteeing liquidity.
Impact on gas and wheat
But in the oil market, the barrier is not just a matter of money. In the globalized market, companies operating in this segment operate around the world and are afraid to face regulatory issues related to sanctions imposed on Russia by Western countries. There is still the image issue. In a conflict that mobilized the unprecedented union of the corporate sector in Moscow’s boycott, no one wanted to appear to be financing the regime.
As a result, the Russian oil market has been selling at a discount since Tuesday. And some want to buy. On Tuesday, the Russian government and oil shipping companies were searching for 80 ships. They found that only six were ready to go to work.
“About 70% of Russian oil trade is frozen,” the Energy Features Advisory Note said.
“Importing oil from Russia has become a very expensive activity due to increased logistics, conflict zone and increased insurance covering political risk. One of the issues that could lead operators to stop buying is saving money. No one wants to appear to be financing the Russian government,” said Attiva Investmentovain Oil. Arbedeman.
To operate in Russian Black Sea ports such as Novorossiysk, insurers charge a premium of up to $ 800,000 for ten days’ coverage.
“There are operational issues, such as the placement and removal of ships, more expensive cargo and insurance, and how to make payments with Russian banks outside the Swift (International Payments) system,” assesses Leonardo Martின்nez, Machado Mayor Advocates’ tax partner. And oil expert.
In the case of gas, the fear of signing new contracts is recurring. The companies have avoided doing business with the business arm of Gazprom, Russia’s state – owned gas company. There is a fear that the contracts signed will not be paid.
Russia accounts for 30% of the gas consumed in Europe. Germany is a country that relies heavily on Russian goods. In the UK, more than 177,000 businesses and businesses are supplied by Gasprom Gas. The company funds most of the Russian government. Prior to the conflict, Putin used a state-owned enterprise as a geopolitical weapon. In London yesterday, in a sign of climate change, the owner of the building occupied by the company said it would soon evict the company from its offices.
Fear of trading with Russia and violating the ban has also affected the prices of other commodities. China sought to strengthen the stock in a state of uncertainty, which put pressure on prices. Wheat rose 7.62% to $ 1,059 a bushel on Wednesday, the highest level in 14 years.
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