How to make the 12th package of restrictions on Russian crude actually work
The FA Premier League has made sanctions against Everton stick. But so far the same cannot be said of the West’s collective effort to punish Putin
If the West wants to up the ante, increasing the scrutiny of attestation documents is a no-brainer. The proposal that the Danes would inspect Russian tankers would need to be part of a wider push to leverage choke points
JUST as Covid-19 gave every other Twitter user the confidence to tackle the obvious errors of world-renowned epidemiologists, so the Russian invasion of Ukraine has gifted social media with a dramatic surfeit of international relations expertise.
Fortunately, this has enabled the bar-room pundits once dedicated to analysing the prospects of football teams to warn us all of the inadequacies of the economic tools deployed to curb Kremlin aggression.
The FA Premier League has made sanctions against Everton stick in no uncertain terms, with the club today handed a 10-point deduction that could well see it relegated this season. But the West’s collective effort to punish Putin has not to date acquired such strident disincentive effect.
According to the estimates from the Kyiv School of Economics, 28.5% of total seaborne exports of Russian crude in October depended upon some level of G7/EU entity participation. That should not be happening at this stage.
Lloyd’s List Intelligence data found that, measured by deadweight, slightly less than half of shipping handling Russian oil exports last month had International Group P&I cover, a proxy for compliance.
Perhaps all this tells us is that sanctions are inherently flawed. To have a hope in Hell, they require aims, objectives accountability and an understanding of what they are trying to achieve.
It was inevitably going to be a neat conjuring trick to devise a scheme that would curb Russian oil revenues but not curb the supply of Russian crude and products to world markets.
And to flip the KSE figure, 71.5% of Russia’s crude exports were handled entirely by entities not legally obliged to comply with it. That renders compelling observance convoluted in an environment straddling multiple international conventions, flag states and port states.
It is thanks to nuances such as these that governments are still haggling over the detail of the recently unveiled 12th package of sanctions from Brussels.
What is clear is that if the current draft of the latest restrictions makes it through the debate, attestation documents are going to come in for some long-overdue additional scrutiny.
Under the rules as they stand, shipping companies and their insurers are required to declare that cargoes of Russian crude have not changed hands at more than $60 per barrel. So long as they do so in good faith, they are in the clear.
But there have long been suspicions that unscrupulous traders are gaming the system by inflating freight costs to offset the ostensibly lowered cargo cost, keeping the latter under the cap.
The proposed shake-up would make subterfuge harder, although there must be doubt that sufficient oversight capacity to prevent the continuation of such abuses exists at present.
The European Union reportedly wishes to make it less easy for tankers beneficially owned by Europeans to be sold into the shadow fleet. Given the persistence of shipping’s notorious corporate veil, that is a big ask.
Meanwhile, the US and EU are pushing the Danes to inspect — and potentially block — Russian tankers sailing through their waters. Our understanding is that the Danes are pushing right back.
It has also written to shipmanagement companies asking them for information regarding about 100 vessels that have moved Russian oil. This appears to be having some effect, with some owners already said to be walking away from fixtures.
But a sternly worded letter will rarely deter parties already intellectually resolved and financially incentivised to take no notice of their strictures.
Recent developments are best taken in the round. What we are seeing is a show of co-ordinated force, attempting to ramp up action and stave off criticism that endeavours to date have not been a complete success.
Here is the acid test; the price cap was introduced to deprive Moscow of petrodollars. Yet data from Russia’s finance ministry suggests that gross revenues from the country’s oil sales are climbing, not receding.
There may or may not be an element of bravado in that assertion. But most US and EU officials privately acknowledge that the cap only worked when the market price was below $60 a barrel anyway. Brent Crude stood at $80 at the time of writing.
The 12th package looks to us to be a step in the right direction. Enforcing transparency on attestation documents should be a no-brainer.
Danish plans to require proper spill insurance for passage through territorial waters should be part of a wider push by EU coastal states to leverage geographical choke points.
And of course, price cap coalition countries should throw the book at entities that knowingly mislead, at least to the limited extent they can do so.
But readers will notice a lot of ‘shoulds’ here. As any social media expert can tell you, coming up with sanctions is easy. Making them work takes time and determination.