Jęczniak: How to collect Russian oil profits?

We are only days distant from turning Europe distant from Russian oil, and here comes a fresh storm. This is an effort by the West to control its price. He was born in Washington.

There is simply a major dilemma ahead of the States, managing the global oil market: can the planet cope without Russian oil? After all, Europe has proved that it may, although it will cost it a lot. But with the remainder of the world, it's not that easy. Unfortunately, Russia is simply a super heavyweight player, it is 12% of the world's mining and the largest supplier of oil and products to the planet market, larger than Saudi Arabia! Washington's playing with fire. Oil is not only 5% of global GDP, but besides a key commodity for all economical activity. advanced prices will affect the full world.

So no, it's besides large an effort on the planet market, push 15% of planet exports out of it... You can't. However, there is another way: to collect Russian export profits. It's simple math – income is the number of times the price, then you gotta hit 1 of them. The volume of exports was not wanted, as the price shock could sweep the western economy, bring it down for years, as during the 1973 arabian embargo crisis. The price remains.

Janet Yellen's plan, author of the idea, is subtle: let Russian oil flow into planet markets, but at a much lower price. Well, what's the price? Yellen preferred 1 that would give Russia a certain minimum income, but that modest income would be more attractive than the failure of markets, closure of mining, dismissal and unemployment. It fell 60 USD/b, 20% lower than today's real price of Russian oil. But it's surely only for starters, if the strategy were to build up, its regulation would tighten and the Department of Commerce, more specifically the celebrated OFAC, could tighten the garrote tighter.

Yellen wants to put the corporations of the Western planet in the insurance, financial and maritime sectors into this work. As he says, many buyers of Russian oil are "dependant on these services of Western companies". And these will follow the orders of the 7 Gang and the European Union, due to the fact that they know precisely what disobedience is.

It's an unprecedented operation, never done in history. The U.S., even erstwhile eliminating 2 large exporters from the oil marketplace - Iran and Venezuela - did not apply specified a solution, but only secondary sanctions. It's specified a vague notion, but... utilizing them would origin US sanctions against anyone who buys Russian oil. However, there were players of much lighter weight.

For countries that would be active in suffocating a Russian bear, the incentive would be rather different from usual, erstwhile fears of punishment force them to comply with the US's strategical objectives. Now there would besides be a prize – low oil prices. America is trying to convince that the Russians will wink first, that contrary to what they supply (and Putin says that oil on imposed conditions will no longer be, adequate backing for the welfare of Western states at the expense of Russia), they will, however, cowardly sell.

Indeed, for Russia, the fight against this fresh financial instrument of repression poses serious threats. Energy natural materials account for 30% of the Russian economy, of which 3/4 is oil, whose exports account for more than 75% of Russian mining. And it brings the biggest income to the Russian state, keeping alive a powerful manufacture that gives jobs to millions of Russians. As it is impossible to rapidly replace the lost supply markets for another customers, it will so be essential to reduce the production. Therefore, it is not possible to make extremist decisions recklessly.

The position of oil exporters will be crucial to the success of the operation. By agreeing to specified mechanisms, they know perfectly well that in the next step they can be targeted. And then they will gotta give way to Western demands (of course besides political ones) in order not to be blacklisted. The OPEC countries have said no many times. And the decision of the October OPEC to reduce mining despite Biden's harsh administration force shows that the clash with exporters is close.

Washington, in the event of the failure of this plan, has 2 oil cocks in the drain. If he considers Russia to be specified a powerful threat to the planet order that he can forget about another threats and marketplace oil from Iran and Venezuela. It's just 1 or 2 papers to sign. And it's possible to flood fresh deliveries with a price fire that will blow after a failed Russian oil operation. Prices will fall and Russia will stay with immense amounts of oil, which there is no reason to mine. It depends on how much America wants to defeat Russia and how much it wants to sacrifice for this purpose.

Andrzej Szczęsniak

Photo: public domain

Think Poland, No. 47-48 (20-27.11.2022)