Oil prices have risen another 3.5% to $123.70 for brent crude oil as the European Union finally moves to ban most Russian oil.
Russian oil imports that arrive from the sea, accounting for 2/3rd of all imports, and in the case of Germany and Poland oil that arrives from pipelines too, will be banned, amounting to 90% of all EU’s imports of Russian oil.
“Unity,” Charles Michel, the President of the European Council, said before announcing that there was an “agreement to ban export of Russian oil to the EU.”
“This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine,” Michel said.
The sanctions further ban one of Russia’s biggest bank, Sberbank, from SWIFT, making this the biggest package yet.
“This will effectively cut around 90% of oil imports from Russia to the EU by the end of the year,” said Ursula von der Leyen, the president of the European Commission.
That’s worth billions of dollars to Russia, every month, with EU further agreeing a €9 billion aid package for Ukraine.
But the sanctions will take months to even begin being felt, with their primary aim being to reduce Russia’s capability to prolong the war.
They won’t stop it, only setting terms on the ground can do that, but they can end it more quickly than otherwise as Russia will simply have less funds to spend on its army.
Unless the ban is cancelled out by the rise in oil prices which currently stand at their highest levels since 2011 and would reach all time high if they cross $130.
That suggests these levels are not really sustainable, and are primarily due to the oil cartel backing Russia, a cartel that sooner or later will break down.
Either due to its internal dynamics with cartels rarely holding as the one to first break away gains the most, or because at these prices a lot of the drilling that otherwise would have not been profitable, now makes sense.
In addition, Europe is going shopping for new friends. It has tons of money to spend, and so it seems to be finding plenty of potential suppliers.
That may redraw the map, from Europe’s perspective, for decades to come as new investments bring new relations.
Making the coldness of Saudi Arabia potentially a catastrophic mistake as it artificially keeps supplies below even pre-2020 levels when the economy and thus demand has grown significantly since then.
This is probably also affecting bitcoin as its cost of production rises, something that in the short term may have increased supply in the price setting market, but in the medium term may set a new higher price floor.
This is probably also temporary because there’s a standoff currently on who will blink first, Europe with the high commodity prices, or the cartel, which includes Russia, with its artificial capped supply.
As the war in Ukraine is seen as a war on the model of liberal democracy itself, Europe can’t blink. Instead it might focus on breaking the cartel itself by investing in production outside it.
The United States in addition is passing the No Oil Producing and Exporting Cartels Act of 2021.
“S. 977 would seek to prohibit foreign states from working collectively to limit the production, set the price, or otherwise restrain the trading of petroleum and natural gas when such actions affect U.S. markets,” the Congressional Budget Office said.
It took them long enough, considering cartels are illegal because they’re extortionist, but it’s the market that will fundamentally break it with smart investment in underfunded potential reserves exploration and extraction.
The Black Sea in the more medium term might be one such place with Turkey discovering some significant reserves, while in the short term US production will probably increase as fracking becomes more profitable.
Europe will also move on gas soon enough, with it shopping for new suppliers there too. Thus the European order is changing as those that attack democracy find democracies can fight back too.