Shadow Boxing in the Oil Market

In an earlier note, I wrote about the US seizure of the dark-fleet tanker Skipper in Venezuelan waters. The EU may be crying foul but their latest sanctions to squeeze Russia’s oil revenues aren’t aimed at Moscow, but dark-fleet that makes it possible. By targeting individuals like Etibar Eyyub and Murtaza Lakhani (both of whom deny wrongdoing), Brussels is signaling that it has grown tired of playing whack-a-mole with tankers that mysteriously lose their AIS signals somewhere between Primorsk and the Indian Ocean.

The 4717 Shot: This is read a regulatory theater. Sanctions on intermediaries raise transaction costs: fewer willing shipowners, higher insurance premiums, more circuitous routes, and greater discounts on Urals crude to entice buyers who prefer to ignore EU press releases. This hasn’t stopped any one, mind, just made it more expensive to operate as enforcement risk gets priced in along with supply risk.

For markets the knock-on will be minimal. As peace talks over Ukraine lumber on, oil futures are down ahead of the prospect of Russian sanctions being lifted with a peace settlement and supply flooding the market and consumption in the world’s second largest economy, China, dials back. Either way, Moscow is going to take a bath on oil revenue for the foreseeable future.