The Energy Perspective Series: The crowning in the Russian cap, Energy News, ET EnergyWorld

The Energy Perspective Series: The crowning in the Russian cap, Energy News, ET EnergyWorld

Updated: 21 days, 6 hours, 56 minutes, 47 seconds ago
The Energy Perspective Series: The crowning in the Russian capBy Jay Cheema
Soaring

With the West having unsuccessfully called

With each drone attack hitting



It was in March 2022 that the EU outlawed business dealings between European businesses and Russian corporations, including Rosneft, Transneft,



Some energy analysts have suggested in recent years that the US has replaced or at least created

Flipping the coin, according to the specialists, Russia could reduce production which could have even greater pernicious effect on non-European countries depending on supplies from Russia. But that would be an economic suicide. Russia thrives on the forex received against its oil and gas exports and the said consideration is bankrolling its war chest and state exchequer. Taking a more humanitarian stand, it is also essential to keep in mind the people of Russia are also facing the brunt of the harrowing winter.

While both the sides continue to be entrenched in their respective posturing and display of military and economic might, they are equally aware of their own precarious positions. At present, the West may not be able to stop Russia from partaking in the energy trade, however the sanction against the Russian banks might prove to be a nail in Russia's coffin. While it may not affect India with Rouble to Rupee trade agreement, it will affect those trading in US Dollar to EURO. The threat of operating on credit with the promise of payment upon lifting of embargo, may just be enough to level the playing field, further restricting EU shipping and Insurance companies to support freight from Russia, is a measure, but unlikely to have any deleterious effect to the supplies from Russia.

The G7 and its allies now faces an unpredictable enemy. But the paramount question is, whether Russia is willing to cut of its own hand to make the West pay? Will the West call another of Russia’s potential bluff? What shall be the impact on the energy markets, if OPEC+ curtails production? Either way everyone would get hurt and it would lead to mutual destruction. Another set of palpable questions are that how far would this commodity crisis go, how long would it last and who stands to gain the most, and most importantly, how much will Brent dive from its current position to make the price cap ineffective.

Lastly, caught between the cross hairs, the developing and under developed countries are proving to be the pawns in this game with their economies facing a new threat every minute. Well, for one, India has chosen to take a stand for itself and has taken up Russia’s offer of discounted crude oil despite the US and the EU imposed price cap and sanctions.

Will the world prove to be resilient? Or will one war give rise to another? What to expect when the dust settles? Will someone have won the game of thrones or would all the powers mutually self destruct? Amid throes of geopolitical game of thrones there is unlikely to be any crowning moment.

[About the Author: Jatinder Cheema (Jay) is a Projects, Energy and Natural Resources lawyer qualified in multiple jurisdictions to practice law including India, Canada and Africa. In addition to General Corporate law across sectors, he has diversified experience in Regulatory, Policy, Transaction Advisory and Dispute Resolution in the LNG, Renewables, Natural Gas, EV, Hydrogen, projects, and natural resources space. Jay holds a LL.B from India and LL.B (University of Toronto, Canada), LL.M (University of Ottawa), and Barrister-at-law. He is called to the Bar in India, Canada and Africa]

Soaring energy prices and its ripple effect on housing, transportation, power tariffs, likely disruptions for climate change goals, enhanced cost of living, commercial and industrial fuel requirements, and temperature already ranging between -2 to -6 degree centigrade is causing onerous consequences for residents of EU, which as winter intensifies will further fatigue and exasperate its inhabitants.With the West having unsuccessfully called Russia ’s bluff, the entire World has proven to be a collateral damage with Europe at its epicentre. While economic and political strategists have been continuously redrawing the recovery plans in the wake of turmoil of economic disaster left by the COVID wave, and the nation states extending economic packages to its citizens, and businesses to tide over the crisis. They now have to factor in the ongoing Ukraine-Russia war and the ensuing energy crisis closer home. With inflation currently in US – 7.5%, EU – 10.6%, UK – 9.3%, which is hovering already at multi-year highs, could further accelerate and escalate into unforeseeable economic and political rack.With each drone attack hitting Kiev or other cities in the Ukraine, the surreal threat of energy crisis becomes more real. After Russia invaded Ukraine, the Brent shot through the roof, crossing the 100 dollar mark and the natural gas prices followed, despite the pipelines having mostly operated as usual. Prices for both, crude and gas, dipped after U.S. and European officials assured that the sanctions against Russia would not disrupt the energy supplies or payments through banks for shipments of oil and gas. With Brent hovering over around $100 per barrel at the beginning of the war to $79 per barrel now, the initial shock and awe has converted to sweeping exhibition of both increased firepower and new stratagems by various protagonists in this game of thrones.Both US and EU while ramping up sanctions on Russia, however, have refrained from batting in favour of imposing a blanket ban on Russian oil and gas. While the west continued to mull over the prospect of a boycott, Ukraine had waded into the debate and had always been advocating in favour of choking Russia’s oil trade. At the beginning of the war, with the Brent already having then touched $118, it was collectively believed that imposing a ban would further sky rocket the prices. Thus, the main protagonists continued to play both the sides. With Brent where it is today and the price cap that has been hinged to any sale of crude does not really make any sense to effectively impose this cap when Ural supplies to India, China, Turkey and other European countries, such as Czech Republic, Slovakia and Hungary are trading below the price cap.It was in March 2022 that the EU outlawed business dealings between European businesses and Russian corporations, including Rosneft, Transneft, Gazprom Neft , and Sovcomflot, the country's largest shipping company, among others. Initially, exclusions were permitted for transactions involving the import or transit of natural gas, oil, petroleum products, and a handful of metals. Therefore, the EU imposed a partial embargo on Russian oil as part of the sixth sanctions package, prohibiting sea shipments of oil to the EU and forbidding European businesses from reinsuring and insuring sea shipments of Russian oil and oil products to nations outside the European Union The G7 price cap entered into force as of 5 December 2022 for crude oil and shall on 5 February 2023 for petroleum products [the price for refined products will be finalised in due course]. The G7 and their allies imposed price cap essentially has direct fallout for its non-enumerated member (EU). None of the G7 countries share any contiguous borders with Russia. The G7 imposed price cap of USD $60 per barrel has already whipsawed the global energy market. Europe faces a potential energy crisis and stands to lose the most. European Union is Russia’s largest trading partner, accounting for 37 percent of its global trade in 2020. Europe is the recipient of 70 percent of Russian gas exports and 50 percent of its oil exports which has now been fettered. Imposing hydrocarbon sanctions would definitely prevent Russia’s war chest from topping up but it would make energy crisis a reality for the entire continent. Initially, Europe’s immediate concerns were assuaged by the US ship deliveries. Does it mean a permanent or long-term shift to the US supplies or as an intermittent arrangement? However, the ground reality is that the quantities that can flow from the pipeline cannot be shipped. Nevertheless, Europe is too dependent on Russia, as was witnessed during the temporary shutdown of Russian gas pipeline to Europe.Some energy analysts have suggested in recent years that the US has replaced or at least created OPEC level influence as the new swing oil producer, with the power to manipulate energy prices by raising or dropping supply to balance markets, and keeping prices from oscillating widely. Alas! The prediction turned out to be premature. Despite the fact that the United States is currently the world's largest producer of oil and natural gas, energy prices and supply fluctuate due to circumstances outside of Washington's control.Flipping the coin, according to the specialists, Russia could reduce production which could have even greater pernicious effect on non-European countries depending on supplies from Russia. But that would be an economic suicide. Russia thrives on the forex received against its oil and gas exports and the said consideration is bankrolling its war chest and state exchequer. Taking a more humanitarian stand, it is also essential to keep in mind the people of Russia are also facing the brunt of the harrowing winter.While both the sides continue to be entrenched in their respective posturing and display of military and economic might, they are equally aware of their own precarious positions. At present, the West may not be able to stop Russia from partaking in the energy trade, however the sanction against the Russian banks might prove to be a nail in Russia's coffin. While it may not affect India with Rouble to Rupee trade agreement, it will affect those trading in US Dollar to EURO. The threat of operating on credit with the promise of payment upon lifting of embargo, may just be enough to level the playing field, further restricting EU shipping and Insurance companies to support freight from Russia, is a measure, but unlikely to have any deleterious effect to the supplies from Russia.The G7 and its allies now faces an unpredictable enemy. But the paramount question is, whether Russia is willing to cut of its own hand to make the West pay? Will the West call another of Russia’s potential bluff? What shall be the impact on the energy markets, if OPEC+ curtails production? Either way everyone would get hurt and it would lead to mutual destruction. Another set of palpable questions are that how far would this commodity crisis go, how long would it last and who stands to gain the most, and most importantly, how much will Brent dive from its current position to make the price cap ineffective.Lastly, caught between the cross hairs, the developing and under developed countries are proving to be the pawns in this game with their economies facing a new threat every minute. Well, for one, India has chosen to take a stand for itself and has taken up Russia’s offer of discounted crude oil despite the US and the EU imposed price cap and sanctions.Will the world prove to be resilient? Or will one war give rise to another? What to expect when the dust settles? Will someone have won the game of thrones or would all the powers mutually self destruct? Amid throes of geopolitical game of thrones there is unlikely to be any crowning moment.Jatinder Cheema (Jay) is a Projects, Energy and Natural Resources lawyer qualified in multiple jurisdictions to practice law including India, Canada and Africa. In addition to General Corporate law across sectors, he has diversified experience in Regulatory, Policy, Transaction Advisory and Dispute Resolution in the LNG, Renewables, Natural Gas, EV, Hydrogen, projects, and natural resources space. Jay holds a LL.B from India and LL.B (University of Toronto, Canada), LL.M (University of Ottawa), and Barrister-at-law. He is called to the Bar in India, Canada and Africa]

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