Ultimately, the entire economic effect of the price cap is likely to be an aberration. Embargoes and price caps are rarely sustainable (cases in point, Iran and Venezuela, which have managed to get their product to market despite embargoes going back years).
However, some of that cost increase is going to be permanent. A tanker sailing from Primorsk or Novorossiisk has a far longer journey to get to China or India than a trip to a European port would have been. There's no avoiding the increased costs for the increased sailing distance, even if Russia is able to fill demand for its crude 100% with a Russian-owned tanker fleet.
The real question is how long will the price cap be impactful? According to the latest news, Urals crude is now trading at ~$55/barrel, which is well below the cap--and thus the cap theoretically has no revenue impact at all, because the price is below the cap level. However, that view presupposes the cap plays no role in the price of Urals crude moving south that way, which is at best a generous interpretation of the data.
If Urals crude stays below $60/barrel, Putin has a dilemma: Russia's position is that they would rather not sell than sell under the price cap--and the market has moved under the price cap. While India and China are likely to continue to buy Russian crude, they are not going to pay a premium for the privilege. Yet if Putin is to make good on the threat to cut production rather than sell under the cap, Putin might have to curtail production of Urals crude, if not stop it altogether.
That is the extreme scenario, but it shows the bizarre state of Russian oil markets at present. The cap and other EU sanctions are undeniably destabilizing the market, yet the player who arguably can make the entire situation even worse is Putin himself. Any arbitrary reduction in production volume means 100% of the associated revenue is withdrawn from the Russian economy--and Russia can ill afford to part with even a ruble of that revenue. A nationalistic response by Putin to the cap could do greater damage to Russia's economy than the cap itself, whose effects are likely to decline over time.
$20-25 per barrel in shipping costs strikes me as a temporary aberration.
Ultimately, the entire economic effect of the price cap is likely to be an aberration. Embargoes and price caps are rarely sustainable (cases in point, Iran and Venezuela, which have managed to get their product to market despite embargoes going back years).
However, some of that cost increase is going to be permanent. A tanker sailing from Primorsk or Novorossiisk has a far longer journey to get to China or India than a trip to a European port would have been. There's no avoiding the increased costs for the increased sailing distance, even if Russia is able to fill demand for its crude 100% with a Russian-owned tanker fleet.
The real question is how long will the price cap be impactful? According to the latest news, Urals crude is now trading at ~$55/barrel, which is well below the cap--and thus the cap theoretically has no revenue impact at all, because the price is below the cap level. However, that view presupposes the cap plays no role in the price of Urals crude moving south that way, which is at best a generous interpretation of the data.
If Urals crude stays below $60/barrel, Putin has a dilemma: Russia's position is that they would rather not sell than sell under the price cap--and the market has moved under the price cap. While India and China are likely to continue to buy Russian crude, they are not going to pay a premium for the privilege. Yet if Putin is to make good on the threat to cut production rather than sell under the cap, Putin might have to curtail production of Urals crude, if not stop it altogether.
That is the extreme scenario, but it shows the bizarre state of Russian oil markets at present. The cap and other EU sanctions are undeniably destabilizing the market, yet the player who arguably can make the entire situation even worse is Putin himself. Any arbitrary reduction in production volume means 100% of the associated revenue is withdrawn from the Russian economy--and Russia can ill afford to part with even a ruble of that revenue. A nationalistic response by Putin to the cap could do greater damage to Russia's economy than the cap itself, whose effects are likely to decline over time.