“Stopping dollar payments for Russia is the first stage of pressure on the Kremlin” – Penzin
14 March 12:57
Oil prices have recovered today, March 14, after yesterday’s drop of more than 1%, according to
Brent crude futures were up 64 cents, or 0.9%, to $70.52 per barrel as of 10 a.m. Kyiv time, after dropping 1.5% in the previous session.
U.S. West Texas Intermediate (WTI) was trading at $67.26 per barrel, up 71 cents, or 1.1%, after closing down 1.7% on Thursday.
Market analysts attributed the rise in part to the Kremlin’s tepid response to the proposal for a 30-day ceasefire in the Russia-Ukraine war. They believe that the likelihood of a quick end to the war in Ukraine has somewhat decreased. Consequently, the likelihood of more Russian energy resources returning to the market has also decreased.
In addition, presumably as part of a certain increase in pressure on Russia, the Trump administration announced that the license that allowed energy transactions with Russian financial institutions expired this week.
According to some reports, Chinese state-owned companies are also cutting back on Russian oil imports due to the risks of sanctions.
So, the rapid global return of Russian oil to the market is off for now, but Russia is still able to sell huge quantities of its raw materials to countries that have not joined the sanctions, such as China or India. Of course, in such circumstances, these states are bargaining for a discount from Russia, but it is not exorbitant. For example, April deliveries of Russian STO oil to China were sold at a premium of $2.50 per barrel to Brent, i.e., for the same $67 per barrel.
And although oil prices continue to fall on the back of Trump’s tariff policy, we are still talking about $67-70 per barrel.
What does this situation mean in the context of Russia’s fiscal capacity to wage war? How can Russia be put under pressure by changing the situation on the oil market? And is it possible at all? After all, it seems that the decline in oil prices is one of the elements of the pressure that Trump has allegedly prepared for Russia in case it refuses his peace initiatives. These issues are
Problems in Russia will begin at $45 per barrel
The economist notes that for Russia there is a clear limit to the profitability of oil production, below which the economy of the aggressor state will suffer significant losses.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. For the Russian Federation, the critical figure is the sales price of $45,”
– explains the expert.
However, it is obvious that this figure looks unrealistic today, because the markets are at a completely different level. And today’s rise in oil prices, Pendzin notes, is absolutely organic, as the global oil market is extremely sensitive to any news regarding the Russian-Ukrainian war.
“Today we have an increase in oil prices because the expectation of a truce has been postponed for now,”
– Penzin confirms.
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The abolition of dollar payments is a real pressure on Russia
Therefore, Russians should not expect any problems related to oil prices for the time being. However, they can still create “oil problems” for themselves. The Trump administration’s decision to suspend the license for oil transactions is one such step, the economist believes.
“A very serious blow to Russia’s oil revenues is the fact that the Americans did not extend the US Treasury Department’s Protocol 8L on March 12, which allowed Russian sanctioned banks to make payments for energy in dollars. The entire financial turnover of shadow oil supply schemes in the world, the so-called shadow tanker fleet, was carried out under this protocol, which was introduced by Biden back in 2022,”
– Penzin explains.
The economist emphasizes the importance of this decision in the context of global oil trade.
“Trump has now canceled it, not extended it. That is, no Russian bank can now make payments in dollars for any oil supplies. And the global oil markets are dollar-based,”
– the expert notes.
Other measures are needed
According to Oleh Pendzyn, this may be the first step in Trump’s strategy to force Russia to a truce.
“I think this moment is the first sign that Trump is starting to put pressure on Russia in terms of achieving this 30-day truce that Trump has set as his first immediate goal,”
– he says.
At the same time, this step works in a rather ambiguous way. On the one hand, it creates problems for the Russian shadow fleet, but at the same time, it works to increase oil prices.
“Thus, these volumes of oil that were shipped by the shadow tanker fleet cannot now be paid for in dollars. This means that they will not be bought by consumers, which means that there will be a certain shortage in the oil market. This has already led to an increase in the price of oil on the global market. This is how it works,”
– explains the economist in detail.
At the same time, the expert believes that the current measures may not be enough to achieve the desired result – forcing Russia to negotiate and sign a 30-day truce.
“Let’s see the next steps, because what we hear and see now will definitely not be enough. I think that Trump will have to come up with new, serious enough methods of pressure on Russia to force them to a 30-day truce,”
– Oleg Pendzin concludes.
