G7 likely to remove cap on Russian oil

According to Reuters, the Group of Seven (G7) and allies have shelved regular reviews of the Russian oil price cap scheme, people familiar with the matter told Reuters, even though most Russian crude is trading above the limit because of a rally in global crude prices.

Russian producers have found ways to sell oil using fewer Western ships and insurance services, making it difficult for the West to enforce the existing price cap because the companies facilitating the trade are outside of their remit.

The G7 countries along with the European Union and Australia imposed the price cap mechanism on Russian oil last December, followed by a cap on fuel from February this year. Initially, EU countries agreed to review the price cap every two months and to adjust it if necessary while the G7 would review as appropriate including implementation and adherence.

The G7 has not reviewed the cap since March 2023 and people familiar with G7 policies said the group had no immediate plans to look into adjusting the scheme.

There were some talks in June or July to do a review, or at least talk about it, but it never formally happened.

While some EU countries were keen for a review they said that there was little appetite from the United States and G7 members to make changes.

The sidelines of the upcoming UN General Assembly later this month could serve as an informal platform for talks on the cap

The mechanism allows third countries to buy Russian fuel using Western ship insurance if there is proof the purchase does not exceed price limits of US$60 per barrel for crude, US$45 per barrel of heavy fuel and US$100 per barrel of light fuel such as gasoline and diesel.

The idea was spearheaded by Washington to cut Moscow's revenues amid its war on Ukraine while avoiding market disruptions as a result of an EU ban on Russian oil.

Benchmark Brent oil futures are trading at their highest this year at above US$90 a barrel, raising the value of global crude, including Russian Urals.

Russia's finance ministry said the average price on its flagship crude grade Urals has recovered to US$74 a barrel on average in August - well above the US$60 a barrel cap - and up from an average US$56 in the first six months of the year.

Russia was forced to cut exports of oil and products immediately after the price cap imposition as it struggled to find enough ships to transport all of its output.

However, the country has managed to move most of its exports into the hands of domestic or non-Western foreign shippers, which do not require Western insurance coverage.

According to Reuters, at least 40 middlemen, including companies with no prior record of involvement in the business, handled at least half of Russia's overall crude and refined products exports between March and June.

While mostly dark fleet of tankers with murky ownership was being now used to transport Russian crude, Western ships were still involved in moving products since those were harder to police, an industry source said.

According to LSEG data, Russian crude has been trading above the cap since mid-July and is currently being traded at around US$67 a barrel at Russian crude terminals. Russian refined products such as fuel oil and diesel have also surpassed their caps.

A US Treasury official said this week the cap was still effective as it had helped cut Russian revenues. He said the group would stay nimble but added there was no plan for an immediate revision.

 

Moscow considering gas export to Pakistan through Iran

Russian Deputy Prime Minister Alexander Novak has said his country is considering export of natural gas to Pakistan and Afghanistan through Iran.

Novak said that in the long run, Russia can send its natural gas to the markets of Afghanistan and Pakistan, either using the infrastructure of Central Asia or by swapping from the territory of Iran.

Back in November, Iranian Oil Minister Javad Oji had announced a plan for cooperation with Russia and Pakistan on gas export to Islamabad.

Under the mentioned plan, Iran can tap Russian gas for a revival of its long-installed pipeline project to neighboring Pakistan.

As reported by Iranian media, Russia has agreed to supply gas to Iran for the purpose of delivery to Pakistan via the Iranian pipelines.

Russia has also agreed to build pipelines in Pakistan that were supposed to be built by the Pakistani side of a 1995 gas supply contract with Iran.

Russia’s contribution to the scheme comes as the country is trying to find new markets for natural gas supplies that were removed from the European markets because of Western sanctions on Moscow over the war in Ukraine.

Iran is also keen to partner with Russia in supplying gas to Pakistan as the country could benefit financially from the project while increased gas supplies from Russia will help the country address potential gas shortages in its northern regions.

Under a proposed swap scheme, Iran will import gas from Russia either through Turkmenistan or Azerbaijan to consume the supplies in its northern regions while committing to deliver the same amount of gas on the border with Pakistan.

Iran has another option to buy Russian gas for domestic consumption in its north without committing to any swap delivery of the same amount to other countries.

That will enable Iran to meet the growing domestic demand for natural gas and increase its gas supplies for the purpose of exports to other countries.

Experts believe both scenarios could benefit Iran although some prefer the swap model because it will lead to more Russian contribution to the Iran-Pakistan gas pipeline project.

 

Israel using gas exports to boost its diplomatic influence

A visit to the Leviathan gas rig off the coast of Haifa illustrates Israel’s opportunity to up its gas game and wield its diplomatic power across the globe. The gas rig is actually quite big.

With three main levels and pipes that seem to go on forever – leaving one wonder how someone figured out how to connect them all.

Leviathan is the largest gas rig in Israeli waters that receives gas from the country’s largest gas reservoir located well over 100 km away. The gas flows through the rig where it is cleaned and then propelled directly to Israel where it immediately powers the country.

Russian invasion of Ukraine has opened what some in the industry call “historic opportunities” for the Jewish state to up its energy game and, in return, increase its diplomatic value and standing in the Middle East and beyond.

The illustrations are bountiful, but two are important: In March, President Isaac Herzog flew to Turkey and met with President Recep Tayyip Erdogan. Last month, Turkish Foreign Minister Mevlut Cavusoglu visited Jerusalem for talks with Foreign Minister Yair Lapid.

Ankara is heavily reliant on Russia for energy – including 45% of its natural gas and 17% of its oil. Reconciliation with Israel and improving relations is the key for Turkey to be able to potentially diversify its suppliers and cut back its dependence on Russia.

The second example was the flip-flop that Israeli Energy Minister Karin Elharrar did on May 30 when she announced that her ministry would be issuing licenses for new exploration of natural gas in Israeli waters. It was a sharp turn from what the Yesh Atid had announced just six months earlier in December 2021.

Elharrar said, “In the coming year we will focus on the future, on green energy, on energy optimization and on renewable energy, and while we do so we will put aside the development of natural gas, which, as is known, is a short-term solution.”

By May 30, Elharrar was singing a different mantra, “The global energy crisis provides an opportunity for Israel to export natural gas, along with the honest and real concern for what is going on in Europe.”

A global energy crisis and the recognition that Israel can play a role in resolving it and at the same time improving its international standing, makes the big difference.

“The world changed and we cannot ignore it,” said Energy Ministry Director General Lior Schillat. “There is a rise in the demand for gas especially in Europe since the Russia situation and they need a steady supply and the minister did a reassessment in the middle of the year instead of at the end of the year since we think it is possible to increase the supply.”

Oded Eran, Israel’s former Ambassador to the European Union, said that the developments in Europe are a historic opportunity for Israel and the energy minister’s policy reversal needs to be looked at through that prism. On the one hand, Eran explained, was the populist-driven decision last December to stop exploration which had wanted to put Israel on track with the climate change camp while ignoring the economic and diplomatic opportunities that gas provides the country.

Until now, Eran added, Israel was not viewed as an international energy player but just as a regional one. “But now with the war in Ukraine, you can see that Israel is not unimportant,” he said.

As an example, Eran referred to US President Joe Biden’s promise in March to transfer 15 billion cubic meters (BCM) of liquefied natural gas to Europe by the end of 2022 to help with the shortfall caused by the war in Ukraine. Israel, he said, already exports about 10 BCM of natural gas to Jordan and Egypt.

“This is not far from the amount that Biden promised Europe,” he said.