President Putin presides over a meeting with ministers and energy company executives regarding the international energy crisis at the Kremlin Palace on the 9th. /EPA-Yonhap
Story by Lee Chul
As oil prices surge, the Trump administration has begun easing sanctions on Russian crude oil exports imposed in response to the...
invasion of Ukraine. Both West Texas Intermediate (WTI) and Brent crude, which were... trading around $60 per barrel before the U.S. and Israel’s attack on Iran, briefly approached $120 on the 9th. Ultimately, to mitigate the shock to international energy markets, the Trump administration decided on the 6th to lift for 30 days the pressure to ban India from purchasing Russian crude oilU.S. Treasury Secretary Scott Bassen stated that the impact of this measure on Russia’s fiscal revenue would be limited, but if the U.S. continues to ease sanctions on Russian crude oil, the story would be different. In an interview with Fox Business, Secretary Bassen said, “Hundreds of millions of barrels of sanctioned crude oil are currently floating at sea. If released, supply could increase, and we are reviewing that possibility.” President Trump also said on the 9th, without specific mention, “To lower oil prices, we are exempting some oil-related sanctions.”
Conversely, Russian President Vladimir Putin is leisurely enjoying the benefits that the Iran war has brought to his country. Russian crude oil, which had been around $50 per barrel throughout last year, temporarily exceeded $100. The New York Times assessed, “The sharp volatility in energy markets caused by the Iran war has become an unparalleled opportunity for Putin.”
On the night of the 9th, at a meeting with representatives of major Russian oil and gas companies at the Kremlin, Putin said, “We are ready to work with Europe” if European Union energy companies seek to purchase Russian gas again. EU countries have strived to ‘become independent’ from Russia’s cheap gas since the invasion of Ukraine.
Putin stated, “If European buyers suddenly change direction, exclude political factors, and guarantee only stable and long-term cooperation with us [Russia], we are ready to work with Europe. We have never refused.” He also did not forget to add, “Russia has repeatedly warned that attempts to destabilize the Middle East will inevitably affect the global fuel and energy system, leading to price increases and supply restrictions, and that is exactly what is happening now.”
At the same time, he threatened that Russia is considering a plan to completely halt energy supplies to Europe. Putin said, “Rather than waiting for the door to close in our face, it is reasonable to redirect supplies to more attractive markets than Europe.” The Wall Street Journal (WSJ) assessed that Putin’s words were tinged with the ‘Schadenfreude’ psychology of enjoying others’ misfortune. Russian gas is much cheaper than liquefied natural gas (LNG) coming from the U.S. and the Middle East because it is directly connected to European countries via pipelines.
However, the G7 introduced a price cap of $60 per barrel on Russian crude oil after the invasion of Ukraine. If the price exceeds $60, it becomes impossible to use insurance and oil tankers controlled by the West. Consequently, Russia had to either keep prices below $60 or use the ‘shadow fleet,’ and with only China and India as buyers, Russia had no choice but to discount prices. Since the implementation of sanctions and the price cap on Russian crude oil, European countries have switched their supply sources to Norwegian and U.S. oil. They have also terminated natural gas contracts with Russia.
However, with the surge in oil prices, even temporarily, a lifeline has opened for the Russian economy. Russian Ural crude, which was around $56 on February 24th, rose to $100.67 on March 9th. Generally, the Russian economy gains an annual growth effect of about 0.7% for every $10 increase in oil prices. It is said that Russia can maintain a balanced national budget at around $59 per barrel.
The Democratic leadership in the U.S. Senate strongly criticized the Trump administration for easing restrictions on Russian crude oil transactions. In a statement, the Democrats said, “President Trump is providing ‘massive financial support’ to Putin” and “Now is not the time to pave the way for Russian major oil companies and Russian-owned or ‘shadow fleet’ vessels to sell oil.”
Of course, Putin also said at the meeting on the 9th, “I do not expect the current high oil prices to last long.” Additionally, Russia has not secured enough ‘shadow fleet’ tankers to transport all its crude oil exports. However, temporarily, due to the Iran war, the factors that had pressured Russia’s finances have disappeared. Putin has every reason to smile.
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