Far from compromise: the challenge to Putin over oil is radically changing the geography of crude oil, with historic repercussions for both the world of energy and industry. Not to mention the interweaving of alliances and enmities on a global level. With repercussions that will mark the performance of the markets at least for the whole of 2022.
The first game concerns the insurance world. Tuesday morning, a few hours later the laborious compromise on the Russian oil embargo, the brokers' attention was not so much focused on the measures taken in Brussels as on the more than probable prospect that the European Union is about to ban European insurance companies, almost monopolistic in the sector, from covering the risks of the ships carrying Russian crude anywhere on the planet. It is an extreme move, agreed with the City, destined to further raise the prices of raw materials, but also to complicate Moscow's plans more than any other, forced to resort to smuggling methods to manage its oil exports which, together with gas, provide 42 percent of the budget revenue of the Russian Federation. Or to assume the risk of damages for any accidents and oil spills, not infrequent accidents that would no longer be covered by theInternational Group of P&I Clubs based in London handling 95% of the global tanker fleet coverage.
From now on, in fact, ships carrying crude oil arriving from Russia would be treated in the same way as those traveling with Tehran's oil. With very negative effects for the trades of Moscow which since the outbreak of the war has managed to largely compensate for the lower sales in Europe (in any case 4 million barrels per day) with sales, albeit at a 30% discount, to India and China. With the active collaboration of Greek shipowners who in April secured 60% of Russian crude oil exports by sea.
Barring twists related to the intervention of Athens, the crude oil market is destined to a new revolution, in line with the European decision to reduce dependence on Russian oil and its derivatives. Much has already changed both in the geography of exchanges and in the ways in which they take place. In particular:
- Europe has increased imports from West Africa: 600 barrels a day arrived in April from Nigeria, Cameroon and Angola. In the past, these flows were directed towards India, today a customer (at a discount) of Russia.
- Moscow has also increased sales to China (+50%), while Europe has counted on greater supplies guaranteed by the USA.
- In the event of a freeze on insurance, the market for "ghost" tankers will expand, those that have insured the sale of crude oil from Venezuela or Iran in recent years. It is a risky but profitable business: up to 5% of the ship's value for an uncovered voyage in “warm” waters, such as those of the Baltic Sea supervised by Denmark. Turkey is better, at least until it joins the sanctions. And in Dubai there may be companies willing to insure oil tankers without being subject to the dictates of the City.
- Already today, judging by what the Gerber company says, 400 barrels a day of Russian crude destined for Asia are transferred from tanker to tanker in the open sea to bypass the controls.
This is the state of the art of the oil market in one of its most delicate moments, not only in terms of prices. The energy industry, even before the sanctions and the embargo, had to face the awakening from the "hibernation" imposed by Covid 19 and by the anti-global warming policies that have strongly impacted on investments in refineries, in free fall in the last few years.
In 2021, Reuters writes, global refining capacity fell by 780 barrels, the likes of which has not happened for 30 years. According to the International Energy Agency (which recommends avoiding new investments, if anything to divert resources to renewables) the overall capacity has dropped to 78 million barrels (compared to about 82 before the pandemic).
The result? Against an increase in the price of oil in the order of 50%, refined products rose by 70% with an increase concentrated in particular in diesel, which still today plays a key role for European cars. But not only. It's on Monday the alarm of Brazilian agricultural producers: in case of interruption of the activity of even a single US refinery, in the summer there is the risk of not having enough fuel for the tractors. And summer, as we know, is the season of hurricanes and blackouts in the Gulf of Mexico.
