The new European measures to tighten sanctions against Russia, discussed in Brussels on Friday, provide for better control of compliance with the price at which Russia exports its oil abroad. And Denmark could have to play a central role because of its control over the straits between the Baltic and North Seas.
Something is wrong in the area of Russian oil sanctions. The European Union must discuss on Friday November 17th how best to limit Moscow’s revenues, particularly from the black gold trade. Denmark is therefore expected to play a central role in the new sanctions system, the Financial Times said on Wednesday, November 15.
Brussels wants to “entrust Denmark with the task of inspecting and possibly blocking cargo ships carrying Russian oil sailing in its waters,” writes the British daily, citing several “people informed of the discussions” about the next European sanctions plan.
However, this new mission of the “big bull” of sanctions that could fall to Copenhagen is nowhere in the proposals to tighten sanctions published by the European Commission on Thursday evening.
The great return of the maximum price for Russian oil
“Several European diplomats confirmed that the European working document did not directly refer to Denmark,” emphasizes the Portal news agency. “I don’t think Denmark will physically stop Russian tankers off its coast from now on. I don’t know on what basis,” says Henning Gloystein, energy director at Eurasia Group. Simply because there is no ban on transporting Russian oil. The aim of the sanctions is simply to “prevent Russia from selling its oil above the maximum price of $60 per barrel of Russian crude oil exported by sea.” [fixé en décembre 2022]not to stop them,” recalls this expert.
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However, the new EU proposals envisage increasing vigilance in the Baltic Sea and in particular in the Danish Strait, which allows ships to pass into the North Sea. “It is a critical corridor for maritime transport in this region, and since it is under the control of Denmark, the role of this country automatically becomes more important,” concludes Benjamin Hilgenstock, a specialist on international sanctions against Russia at the Kyiv School of Economics, together.
Europe wants to bring the famous maximum price for Russian oil back into the media spotlight because its impact has caused a stir. In October 2023 there were “almost no crude oil deliveries [russe] by sea below the limit that the G7 and its allies tried to enforce,” points out the Financial Times.
Even Jeffrey A. Sonnenfeld, an American economist and one of the architects of the price cap mechanism, admitted that “his” baby was no longer working.
However, shortly after its introduction, this sanction initially seemed to work very well. Russia had to sell its oil by sea below the famous $60 mark for several months. It was not until the summer that Russia’s income from these exports increased again.
Ghost ships and shadow insurers
Today, experts are even wondering whether this price cap actually never worked. “Another explanation is the total embargo on Russian oil for the European market alone [entré en vigueur en même temps que la fixation du prix plafond sur le transport international, NDLR]. Without this market, Russia had to agree to significant price reductions in order to continue selling its oil to new customers such as India,” explains Elina Ribakova, Russia sanctions specialist at the Peterson Institute for International Economics (PIIE).
Another explanation is that Russia ultimately found a way to effectively circumvent this system. “It has built a fleet of ‘ghost ships’ that now handle 70% of all oil shipments for Moscow,” notes Elina Ribakova. These are hundreds of used and disused tankers, which are often over 50 years old.
What is the connection between old boats and sanctions evasion? “By purchasing old tankers, the Russians were able to have them insured by new companies that are not dependent on the G7 countries or Europe and thus take the risk of ensuring the transport of oil abroad. above the maximum price,” explains Benjamin Hilgenstock.
Read alsoRussia relies on “shadow fleets” to save its oil exports
Insurance companies are, in fact, the mainstay of the war over Russian oil. The system, planned in December 2022, stipulated that a cargo ship carrying valuable Russian hydrocarbons sold for more than $60 should not be insured, otherwise the insurance company would face a fine.
Result: In addition to ghost ships, these sanctions have given rise to “shadow” marine insurance companies that agree to take on this risk, trusting that the ship will not be inspected before delivering its oil to India or elsewhere. “You have to say that the controls are not enough,” assures Henning Gloystein.
And this is where the Strait of Denmark comes into play. This is the perfect place to strengthen controls. “More than 70% of all Russian oil exports by sea pass through the Baltic Sea before being delivered to customers, mainly in Asia,” emphasizes Henning Gloystein.
To make these controls more effective, the European Union now wants the insurance of these tankers to also cover European environmental regulations. “Of course, these ships must be insured against the risk of oil spills. “That’s very expensive,” notes Benjamin Hilgenstock.
Beware of oil spills
A novelty clearly aimed at the fleet of Russian “ghost ships”. In fact, “these are aging ships that pose an increased risk of accidents, and it therefore seems completely natural that a country like Denmark would want to protect its coasts from such a risk by requiring proof that the shipowner is actually insured.” explains Elina Ribakova.
This is a problem for Moscow: “None of these new insurers [de l’ombre, NDLR] does not have sufficiently strong financial support to cover the enormous costs of a possible oil disaster,” emphasizes Benjamin Hilgenstock. In other words: the goal is to get these Russian boats to come back and insure themselves with companies that are already well established and can guarantee against this type of risk. All of these insurers are dependent on G7 or European countries and will therefore require that the oil being transported is actually sold under $60. And then this is done?
It is always possible that a Russian ghost ship will continue to do business with these small “shadow” pharmacies and refuse to provide documents to the Danish authorities. Denmark will not have the means to block these ships. But airlines that make this decision find themselves in the crosshairs of American and European authorities, who may sanction them in the future. A damn big risk…
“In the short term, in the coming weeks and months, these adjustments will likely force Russia to sell its oil cheaper. But we should never underestimate the creativity of those who want to circumvent the sanctions,” says Henning Gloystein. But for Moscow, the search for a solution will inevitably come at a cost. Russia has already had to spend billions of dollars building its “ghost fleet”. That will be a victory.