Media: How the looming embargo on Russia’s energy products may impact the global economy
Currently, Russia is diversifying its oil supplies, Head of the State Duma Energy Committee Pavel Zavalny told Izvestia, noting that EU countries are more likely to suffer as a result of a possible oil embargo against Russia encountering a new price hike on energy products. On May 4, the European Commission submitted its sixth sanctions package to the Council of the European Union. According to the European Commission, it includes an oil embargo, the removal of Sberbank from SWIFT, a ban on European broadcasts of three Russian TV channels as well as new individual restrictions. A source in the European Parliament told Izvestia that some EU countries are still not ready to reject Russian oil.
By rejecting Russian oil, the EU risks repeating the last year’s gas ordeal when prices surged from $150 to $1,200 per one cubic meter, Executive Director of the Capital Market Department at Univer Capital Artem Tuzov explained to Izvestia. "And that was without sanctions. Now the situation is more complex. The global energy crisis is not over and the EU is exacerbating it by inflating prices for sources of oil and petroleum products supply alternative to Russian ones. It is precisely Russia, selling oil at a discount, that prevents prices from rising," the expert noted.
On Thursday, May 5, OPEC+ participants will coordinate oil production volumes beginning this summer. The EU’s oil embargo will depend on this.
OPEC+ will be guided by the fundamental situation on the market, Alexander Kurdin, an expert at the Russian Government's Analysis Center told Rossiyskaya Gazeta. According to the results of the first quarter, the situation was generally balanced. Since April, the risks of retaining the level of Russian production have been growing which may cause a deficit yet on the other hand, the interventions from the oil supplies of the US and some other countries, as well as new COVID-19 lockdowns in China have contributed to limiting demand. Over the past weeks, we have not observed any oil price spikes with prices hovering at an agreeable level for OPEC+ of about $100 per barrel, he said. The expert thinks that this means that there shouldn’t be any sudden moves by OPEC+.
Moreover, according to senior analyst at Alfa Capital Maxim Biryukov, given lowered demand due to lockdowns in China, it cannot be ruled out that at its May meeting, OPEC+ may decrease its rates of increasing the oil production.
Russia’s Armed Forces continue to deliver strikes on Ukraine’s military and transport infrastructure targets. On May 4, the Russian Defense Ministry reported high-precision missile strikes on traction electric installations in the vicinity of five Ukrainian rail stations. According to experts, this should decrease the rates of arms deliveries to Ukraine from European countries and the United States.
Military expert Andrey Frolov told Izvestia that NATO transport is currently not being used on Ukrainian soil. According to him, the strikes on railroad infrastructure should slow down the process of delivering weapons.
"Substations are being destroyed and Ukrainian railroads have been heavily dependent on electricity since Soviet times. There aren’t that many diesel locomotives and, besides, they need fuel and they already have a deficit of it. This will slow down the rates of delivery at least of the heavy armaments along the railway system," the expert forecasted.
Russia may be facing another technical default on May 27 when the coupons on its Russia-2026 and Russia-2036 bond issues will have to be redeemed, according to the Finance Ministry’s documents. On May 4, the period when the ministry could pay for Eurobonds in dollars expired. According to Bloomberg, payments were received by the holders of Russia’s state debt. Experts expect that Russia will continue to pay in dollars for Eurobonds where payments in rubles are not provided for. However, on May 25, the license of the US Department of the Treasury which allows American investors to receive money from Russian state structures will expire.
It will be possible to pay for Eurobonds due in 2026 in US dollars or in euros, pounds or Swiss francs, Leading Debt Market Analyst at Otkritie Investment Alexander Shurakov told Izvestia. He added that it is possible to pay for the Russia-2036 bonds in those currencies or in Russian rubles. It is possible to pay using national currency if Russia "through no fault of its own is not able to pay for the principal debt or percentages in any of these currencies," the expert specified.
"Most likely, the Russian Ministry of Finance will aspire, above all, to pay from the frozen foreign currency accounts. If they are blocked, then the Finance Ministry will use accessible foreign currency funds. On bonds, if their emission documents permit, perhaps, the payments will be in rubles," Promsvyazbank Chief Analyst Dmitry Monastyrshin noted.
Chief Economist at the TeleTrade information and analytical center Mark Goikhman noted that on May 25, the OFAC’s license expires which enables US citizens to receive payments from Russian state structures despite the sanctions. He explained that a scenario is possible where Russia pays the debt while the American creditors won’t get the money. The expert expects that this license will be extended.
According to him, the country is demonstrating in every possible way that it is not interested in a default, even a technical one. That said, the expert stressed that many hypothetical consequences of this scenario had already come true without it actually happening: even without a default, the sanctions led to a ban on investments in Russian assets, to the blockage of some state property, the outflow of investors, lowered ratings and the impossibility of attracting funds on external markets.
Chairman of Russia’s Presidential Human Rights Council Valery Fadeev has cast serious doubts on the ability of current global institutions to defend human rights. In his article for the Rossiyskaya Gazeta he proposes organizing an international project to find a consensus on this issue with the full equality of all participating nations.
"The world failed to protect the people of Donbass through words, [so] it was necessary to start a military operation to protect them with weapons. So why did the world’s human rights institutions fail? Because the efficiency of these institutions is questionable. Moreover, too often the powers that be use them for ignoble and lucrative purposes," he wrote.
The official said that it is extremely pertinent to return a truly humanistic foundation to the system of human rights and freedoms in such a way so that this system won’t be used as a means of governing unruly countries.
"It is necessary to organize international work on finding a consensus in the sphere of human rights and freedoms, with mandatory full equality of those nations participating in this work," Fadeev thinks.
At a roundtable discussion of the Social Research Expert Institute (EISI), Mikhail Mamonov of the Russian Public Opinion Research Center presented the results of a poll, according to which 61% of the respondents say that Russia’s special military operation in Ukraine has united Russian society. According to 10% of those polled, the special operation did not impact Russian society in any way, 20% think that it rather separated and divided it, while 9% had difficulty responding.
The national characteristic among Russians is "increased unity" as pressure on the country intensifies, political scientist Alexander Rudakov said at the roundtable discussion. According to him, a "Donbass consensus" has emerged in Russian society which is comparable in scale to the "Crimea consensus." Yet if in 2014, it was formed on the basis of a "positive emotional experience of a historic moment," then the current unity is being shaped "by the conscious and stable confidence in the correctness of the chosen path," the expert thinks.
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