G7 to decide the price of Russian oil

Investment Analysis Clubs Macro Economic Trends and Risks
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I love this idea. There are ways to do this. Such as sanction companies that pay more for the oil. Such as not insuring tankers carrying Russian oil that have a specific destination.

The last line of the snippet below that India and China will be buying oil at lower prices? Okay the more oil the better. It puts a lot of pressure on OPEC.

Bottom line the old idea that the G7 could be a cartel of its own is more than alive.

https://www.nytimes.com/live/2022/06/27/world/russia-ukraine…

headline

The G7 faces dueling pressures: Penalize Russia while easing their nations’ economic pain.

snippet

The effort to put a price cap on Russia oil is the brainchild of Janet L. Yellen, President Biden’s Treasury secretary. The details are likely weeks or more away from being finalized, requiring intense negotiations by G7 finance ministers, private companies and leaders of countries in Latin America, Africa and elsewhere that buy Russian oil.

And there is no guarantee that the plan will come together quickly, or at all, or that it will succeed as the G7 leaders hope.

There is also a potential political downside in Europe and possibly the United States: To succeed, the plan will need to give China, India and other countries that have not joined the G7 in opposing Russia’s invasion of Ukraine the ability to buy oil at a much lower price than America or much of Europe can.

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Without a source of oil/gas to replace what would be lost if Russia holds to its price, a number of European countries will have a very cold winter,

If the war is wrapped up by the end of the year as the Ukrainian government projects, I expect Russia to continue to occupy (maybe even annex) the eastern portion of Ukraine as well as Crimea. There is no reasonable way to change this (any more than international pressure has made Israel give back what they took in 1967).

Are you projecting that the ant-Russian sanctions will be enforced in perpetuity?

Russia took action to take Crimea when the newly Western-leaning government of Ukraine said that it would not renew the Russian lease of their naval base at Sevastopol, where the Russian Black Sea fleet is headquartered. More recently, when Ukraine was supported by the West in its saber-rattling to take back Crimea, Russia has consolidated its hold on the area from which a Ukrainian attack would have come. They do not seem particularly interested in either acquiring industrial assets or population, but rather, a defensive perimeter.

That said, they regularly pop Ukraine in the nose to remind them of how much damage they could cause to the remainder of the country if they were provoked enough to unleash their full offensive potential against it. My guess is that the sub-rosa negotiations between Ukraine and the various Western organization of the EU, NATO and individual players like the US include Ukraine promising to restrain any significant attacks across the Russian border so as not to start a third world war by any of those alliances being forced to directly conflict militarily with Russia.

Russia has achieved their initial objectives and appeasement, with all its historical distasteful connotations, is what will take place for now at least, but the West has been forewarned and I expect it to prepare for the worst (not only in the European Theatre, but also in the vicinity of the South China Sea and the Formosa Straits.

Jeff

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If the war is wrapped up by the end of the year as the Ukrainian government projects, I expect Russia to continue to occupy (maybe even annex) the eastern portion of Ukraine as well as Crimea. There is no reasonable way to change this (any more than international pressure has made Israel give back what they took in 1967).

Unless Russia runs out of artillery shells in which case the Ukrainian army can advance.

Russia will soon exhaust its combat capabilities, Western assessments predict
www.stripes.com/theaters/europe/2022-06-25/russia-exhaust-co…
But the “creeping” advances are dependent almost entirely on the expenditure of vast quantities of ammunition, notably artillery shells, which are being fired at a rate almost no military in the world would be able to sustain for long, said the senior Western official.

…conditions for Ukrainian troops are only likely to improve as more sophisticated Western weapons arrive, while those of Russian forces can be expected to deteriorate as they dig deeper into their stocks of old, outdated equipment, said retired Gen. Ben Hodges…At some point in the coming months, the Ukrainians will have received enough Western weaponry that it is likely they will be able to go on the counteroffensive and reverse the tide of the war, he said…

Another unknown is the extent of Russian artillery stocks, which Western intelligence estimates had initially underestimated, the Western official said. Expecting a short war in which Ukrainian forces quickly folded, the Russians made no effort to ramp up production before the invasion…

DB2

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Russia will soon exhaust its combat capabilities, Western assessments predict

…

Another unknown is the extent of Russian artillery stocks, which Western intelligence estimates had initially underestimated, the Western official said.

These two statements are rather contradictory. So do we know how many artillery shells Russia has or not?

–Peter

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Russia will soon exhaust its combat capabilities, Western assessments predict

And what about US combat capabilities?
https://www.19fortyfive.com/2022/01/the-us-army-has-an-artil…
The end of the Cold War hastened the decline. From 218 artillery battalions in 1989, the number of Regular Army, Reserve and National Guard units shrank to 141 by 1999. In the 2003 Iraq War, well-trained artillery crews were being used as infantry.

“While the U.S. Army’s field artillery branch was dealing with the implications of COIN from 2003 to the present, the militaries of a number of potential competitor nations made significant advances,” noted a 2019 study by the RAND Corporation.

“For example, as of 2017, the Russian Army has made considerable advances in its artillery.

The US has somewhat replaced artillery with airstrikes. The Ukraine does have access to US airstrikes. Yet anyway.
https://rusi.org/explore-our-research/publications/commentar…
The winner in a prolonged war between two near-peer powers is still based on which side has the strongest industrial base. A country must either have the manufacturing capacity to build massive quantities of ammunition or have other manufacturing industries that can be rapidly converted to ammunition production. Unfortunately, the West no longer seems to have either.

Presently, the US is decreasing its artillery ammunition stockpiles. In 2020, artillery ammunition purchases decreased by 36% to $425 million. In 2022, the plan is to reduce expenditure on 155mm artillery rounds to $174 million.
In short, US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine. If the initial estimate of Russian shells fired is over by 50%, it would only extend the artillery supplied for three weeks.

The US is not the only country facing this challenge. In a recent war game involving US, UK and French forces, UK forces exhausted national stockpiles of critical ammunition after eight days.

Artillery manufacturing factories like semi conductor factories take time to build. And does an artillery munition manufacturer wish to make such an expenditure form a limited need for more equipment? Would increasing existing factories production to 24/7 be sufficient to supply the Ukraine? From where would the skilled labor supply come?

In looking around the internet the US has one huge factory complex** owned by US, run by General Dynamics*.

And it is more than just artillery ammunition production. The US is replacing Ukraine artillery with Western equipment as the Ukrainians had Russian equipment & have already taken all the spare ammunition for that Russian weaponry that Eastern European NATO members can spare. The Ukraine is running out ammunition for their Russian equipment***.

**https://hsp.org/blogs/fondly-pennsylvania/abridged-history-s…

***https://www.stripes.com/theaters/europe/2022-06-10/ukraine-a…
https://www.militarytech.news/2022-06-15-ukraine-running-out…

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Are you projecting that the ant-Russian sanctions will be enforced in perpetuity?

Jeff,

As far as oil goes the sanctions have been lifted for China, India and smaller nations to buy Russian oil. The Russians are discounting the oil.

All this does is openly conspire to set the price for Russian oil much lower. The Indians and Chinese will love it. If a small country feels they have no leverage over Russia, the west can insist the oil tankers wont be insured to deliver the oil to the smaller country unless the price is less. If the Russians concede on price to a small South American country China will insist on the same price or visa versa. The dominos will fall.

That does not mean less or more oil will flow. But Russia’s needs means they will pump more at lower prices.

Oil is dropping anyway. I gassed up today at Costco for $4.55.

As far as NG, I guess the Europeans see themselves as not sourcing much from Russia this winter. But I do not know how that is done. I do know Russia and China are uninterested in the cost of building another pipeline to China.

As far as when this war ends I do not know. I do understand Ukrainians wont stop as long as Russia’s military is on their country. Russia is going to be very worry when they surrender or withdraw. The Ukrainians were close cousins. That is gone. It will never be back.

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Ukrainians wont stop as long as Russia’s military is on their country

That’s going to either follow the path that Mexico did when the US annexed over half their country or the route the Palestinians are taking in the West Bank. I’m guessing that that is what is behind the shipping out of Ukrainians from the occupied territory to “filtration” centers in Russia.

Given the mismatch in size of the Ukrainian military and Russia’s, who would you suggest should counterattack directly against Russian troops? The US, NATO, the EU?

Jeff

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Jeff,

The estimates are hard to trust. The Russians are over spending their ammunitions. They will run out. The Ukrainians are being rearmed. The Ukrainians have more man and woman power.

The difference for Ukraine v either the Mexicans or the Palestinians is not lost on you? The Americans are not on Russia’s side nor the Mexicans nor the Palestinians.

In all of this the winning side is the American side. We also have friends with power.

Is China shipping weapons to Russia? Who is going to pay for that? Not on.

We are paying, the entire western world is paying for arms to Ukraine. That wont stop.

I have no idea why you think there will be a compromise with Russia. It is not beneficial to Russia to compromise with Putin.

If you think Putin will launch a nuke that should not change the calculus. Such a threat has to have zero meaning. Or you are saying we are bullied willy nilly.

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