‘Europe sanctions Russian oil.’ Statements like this are common in the media (including in my own articles) but they can be misleading. ‘Europe sanctions Russian oil’ makes it sound like there is a single actor, ‘Europe’, who has decided not to buy oil from another actor, ‘Russia’ – in this case because the former disapproves of, or wishes to punish, the latter.
But that’s not what’s going on.
What ‘Europe sanctions Russian oil’ actually means is that European states have prohibited European companies from buying oil from Russian companies. In other words, the embargo involves coercion of European companies by European states. This is not to say it’s unjustified (that’s a separate issue); I’m just pointing out how it really works.
Now, companies are beholden to their shareholders, or to tax-payers if they’re owned by the state. While individual CEOs may have strong, personal convictions for or against the sanctions, they have to do what is best for their shareholders – not what is best for Ukraine, NATO or the West.
So if companies can find a way around the sanctions, while still respecting the letter of the law, they’ll almost certainly take it. They have no interest in complying with the ‘spirit’ of the sanctions. This is particularly true under an oil embargo, since oil is one of the most useful products in the economy.
I previously discussed one way in which companies have been flouting the ‘spirit’ of the sanctions: importing Russian oil that has been mixed with Kazakh oil during transit, and for which they can therefore issue a Kazakh “certificate of origin”.
Recently, someone on Twitter gave this example:
I work as a maritime pilot. Had a Russian ship with oil come into a Dutch port, we passed the breakwaters, swung around and headed out to sea again, to Germany. Magically the cargo was suddenly labelled as ‘Dutch oil’, so the Germans were happy to receive it.
Another way companies can get around sanctions is by buying Russian oil from third parties. It’s well known that India has been importing crude oil from Russia, refining it, and then re-exporting it to Europe at a profit.
Alternatively, other oil exporters can simply buy up the Russian oil themselves. Saudi Arabia has been importing crude oil from Russia, and then setting it aside for domestic consumption. Meanwhile it sells its own oil to Europe at market prices, which greatly exceed those it pays for the Russian oil.
Unless the West literally blockades Russian ports, or manages to convince countries like China, India and Saudi Arabia to go along with an oil-price cap (which seems very unlikely), I can’t see how the embargo will work.
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“I can’t see how the embargo will work.”
Depends what the true intention of the embargo is. Are European leaders so utterly moronic that they don’t realise all of this? Hard to believe. So presumably it’s all just for show and at some point they will have to quietly back-pedal, or it’s for some other more nefarious purpose.
I’m afraid they are moronic but because they aren’t really thinking things through. And they don’t do that not because they aren’t capable of it, but because they are completely overwhelmed. They are constantly on the verge of losing control and are compelled to act quickly to appear authoritative and in control.
Their primary skill is political, to sniff out the direction of the wind, to calculate what is doable and what isn’t, to work out where they need to stand and take credit for things and where to avoid shit hitting them as it fans out.
They might care a bit about how things play out if they cared more about the people they are meant to serve and represent than they do about themselves and their careers. But they don’t.
Possibly overwhelmed but possibly also simply not that interested either. Part of politics is to anticipate arguments that will be made against you and that to an extent involves thinking through your position and checking for holes so you can prepare your defence – however it seems that on covid and on Ukraine (and on so many other supposedly “settled” issues like Net Zero) no one in the mainstream is making arguments against them – there’s no mainstream opposition in the UK to our involvement in the Ukraine, to Net Zero madness and there was no real opposition to covid madness – neither from any political party nor from the media.
Absolutely. Which politician is going to stand in opposition to all that? No need to do the numbers. When it all ends in disaster, they know that at worst the responsibility will fall on the herd as a whole, not on them as individuals.
“Which politician is going to stand in opposition to all that?”
It’s odd – on some issues the main political parties at least pretend to be bitterly divided, even though in practice the differences are minor. But on some other issues like the ones bugging all of us here – covid, net zero, wokeism (to an extent), freedom of speech, Ukraine – they are all in lockstep.
The ones that actually matter and are of substance!
Indeed
The supposed difference between Labour and Tory regards the proper role of the state vs the individual, the public and the private
That’s an important difference but in practice there has bern
little to choose between them in recent decades
This article is largely based on a fundamental misunderstanding of company law which I suspect derives from Noam Chomsky and his misinterpretation of Dodge v. Ford. Company directors need not act to maximise shareholder profit (or even profit at all, depending on the objects of the company) and can act in a manner that doesn’t maximise profits, as long as it’s in the interests of the company as a whole. To the point being made in the article, directors can in fact decide to do “what is best for Ukraine” in these circumstances. To demonstrate this point, many companies have pulled out of Russia despite taking a hit (BP is a good example), but it’s not only “good PR” that underlies these decisions, it can be that the directors are making judgements based on broader issues affecting the company like a company’s place in society (the AELTC committee banning Russians and Belarussians from Wimbledon is perhaps an example of this).
So the notion that directors will inevitably look to circumvent the letter of the law vis-a-vis sanctions in order to maximise profit and dividends is just incorrect, and besides which it’s also based on the hidden premise that shareholders would consider that in their interests. That’s not to say that some outfits won’t try to flout the sanctions – it looks like Stavropolneftegaz (100% owned by Dmitry Kamyshev) may have been trying to do so, but that’s a Russian company and we’d expect that. Claims that ExxonMobil received Russian oil into Britain appear to be overblown or outright false, since deliveries via the CPC pipeline are segregated. Examples from India would have to be substantiated. As for Saudi, that’s likely as much to do with Biden and Iran than sheer profit.
I’ve never read Chomsky on Dodge v. Ford. I was going by Milton Friedman’s essay ‘The Social Responsibility Of Business Is to Increase Its Profits’.
Friedman is undoubtedly right from a purely theoretical free market perspective, but the fact that he had to make that argument (which goes against US case law) shows that he thought it was a problem that companies don’t always act to maximise profits. Without wishing to suggest US law applies to the UK or Europe, you can’t use Friedman to skate over things like the “Business judgment rule”.
I’d also note that if we’re talking about “self-interest” (Uncle Milt’s favourite term), Friedman repeatedly noted that individuals perceive self-interest individually and uniquely (and actually in a manner similar to corporate executives), which is to say they don’t always want to maximise profits (charity being one example). In his personal/business life Friedman didn’t do that (and there’s a famous story about that), but my point is that you have a fundamental misapprehension of how companies behave, and that it’s false to suggest the inevitability of companies skirting sanctions if they think they can get away with it legally.
Oh Ian, honestly I don’t know what to make of this..I find myself at odds with you all the time…and I really don’t want to be…..but honestly is it genuinely possible for a supposed ‘grown person’ to be this naive?
Part of me just wants to believe you are playing a part and having a laugh!!
Have you honestly learned nothing during your life and especially about the lies, deception and even the willingness to injure and yes even kill ….. of the drugs companies, that have been written about on here ad nauseam for over two years?
It has been well known for months that, as Noah says, countries have been buying from Russia cheap, and selling it back to Europe…It is well documented that Greek oil tankers continue to transport Russian oil…..
Between March 9 and June 30, more than 50% of Russia’s oil exports were transported by Greek tankers.
Accordingly, the list of Greek shipping magnates involved in the lucrative business include the owners of the country’s biggest private broadcasters, which have harshly criticized Russia’s war in Ukraine. Fuel arrivals offshore Greece have been at record levels as ship-to-ship loadings are a way to export Russian oil under sanctions….
I’m thinking you’ll probably need a chair to sit on reading that…who would have thought……criticising Russia while making money??
The report reiterated that Ukrainian officials, including President Volodymyr Zelenskyy and Ukrainian Ambassador to Greece Sergei
Previously, data showed that fuel oil arrivals offshore Greece jumped to record levels in April as Moscow saw ship-to-ship (STS) loadings as a new way to export Russian oil under sanctions.
Sorry about the last paragraph..pressed before I had properly reviewed…
But….I would also add that it’s not just oil….in a world of stupidity, Peak-stupidity might have been reached in Europe by Cutting direct gas supplies from Russia and instead buying Russian Gas shipped via China to Europe at a huge markup in price!!
None of that touches on the point I was making. Sure, “big pharma” has a hell of a lot to answer for (as Mike Hearn and others have written about here), and sure before the EU oil sanctions in June there were some unknown small-ish traders trying to keep making a profit transporting Russian oil, but the point I’m making is that it’s fanciful to suggest companies (at least, the larger companies or those with any kind of public profile) are going to try to game the system legalistically.
I’m not qualified to comment on that, but it seems obvious to me that in a global market where major purchasers are not taking part in the sanctions and we are not reducing our consumption by any significant amount those sanctions are not of any practical use.
The practical use is that they drive down the price of Russian hydrocarbons. There’s a cost to that, but that’s always the case with economic warfare.
Have they done so? What was the price of Russian hydrocarbons before sanctions hit and what is it now?
No.No.No.No.No. The sanctions have driven up the underlying price of oil and Russian hydrocarbons are making more than ever irrespective of the discount. Moreover it’s driven Russian oil into new markets and new refineries. Russia is now richer and more robust. We are poorer and weaker. I myself have traded many millions of barrels of Russian and other oil. Global oil traders operate at an intellectual level infeasible for most politicians and bureaucrats.
Brent crude is now lower than before Feb 24. It was higher during the period 2011-14, despite dollar inflation. So “no, no, no, no, no”. And if I don’t understand hydrocarbon markets, why did I buy IGAS.L at 20p earlier this year? Russia would have done best by holding its troops on the Ukrainian border, which put up the price at little cost to Russia. That would’ve been clever.
Translation: From 2015 to Jan 2022 Brent was way, way lower. Eyeballing the chart it was average about $55. Since Jan 2022 it’s averaged about $95, maybe more. Big difference and huge windfall for Putin.
You haven’t a clue about hydrocarbon markets if you claim that sanctions have hurt Russian oil. Well done for going long a cheap stock. I did too (Sandridge), but that’s got f’ all to do with understanding oil markets and the manoeuvres and creativity of oil traders.
Sanctions didn’t really affect the oil price. Look at the dates. You might argue some of that was priced in, but what’s more relevant was the threat of war and the war, and also Saudi’s hatred of Biden. Sure, sanctions have advantaged some countries and the overall price is important, but they’ve hurt Russia in terms of the discount they now have to give.
War, uncertainty, sanctions – pound down, euro down, ruble up. We’re worried about freezing in the dark, Russians, Chinese, Iranians, Saudis, Brazil, South Africa, India all looking at de-dollarisation. Great job if you want to destroy the West.
There’s a lot to unpack in what you’ve just said. Too much to comment upon here. I’d just say that the rouble price is artificial and supported by the Kremlin, but you’ll be aware of that, and it’s not necessarily a good thing for them. As regards energy generally, the West (and Germany in particular) has put itself in a terrible hole, largely because we’ve been listening to idiots like Greta Thunberg, Al Gore and the like (and being scared of nuclear power). But that’s a much bigger issue, and something DS is doing a lot to combat. I hope we wake up and smell the roses because of all of this. But just to keep roughly on topic, I maintain that Noah is wrong in his assessment of possible sanctions-busting and the overall longer-term effect of sanctions.
Long-term effects of sanctions:
I expect you’ll be buying roubles, then. LOL.
Latest sanction – a price cap on Russian oil. Beyond ludicrous.
Not buying roubles, then?
I’ll look at the chart. I tend to buy low, sell high.
Uh-huh.
Uh-huh. Yes, I prefer to buy low, sell high. What do you do?
Looked. Since sanctions the dollar has been strong as goat’s breath…except against that the rouble has doubled against the dollar.
So you’ll be buying the rouble then?
Sorry mate, but you seem a bit silly.
If/when it looks cheap, ie when self-induced recession in the West knocks down commodities below mean reversion. Sanctions have helped make it expensive. You shorting it? Against which currency?
You have no idea which ‘traders’ the Greek tankers are dealing with..you can surmise all you want…it’s perfectly possible you surmise wrong.
I think you mistake not pursuing profits NOW with not pursuing profits.
If company directos and managers can be persuaded that they will suffer much bigger loss of profit from legal repercussions or other coercive means if they don’t follow government instructions, then they will forgo immediate profit to avoid greater future loss.
For moral or idealistic reasons alone you can be sure they won’t be forgoing profits.
What about the whole “get woke, go broke” thing? And just generally, it seems pretty clear to me that companies make decisions that are bad for profits all the time — or else no company would ever lose market share or go bust. What goes on in company directors’ heads is often quite mysterious even to the shareholders.
…..nonsense…..Adidas, Visa, Coca-Cola, to name a few companies will all be advertising and supporting the World Cup in Qatar….what they won’t be doing is flying their rainbow flags, because when it comes down to it, profit tops woke….
Pure pursuit of profits would therefore be the reason why good employees are lost every year by Western companies because they don’t fit woke criteria (not an accepted “minority”, not having “appropriate” views). I’m sorry mate, but you just don’t get how insane a lot of companies are. One of my friends lost his job as the head of Barclaycard because he told an off-colour joke on the golf course.
I agree they are pretty insane, like the world in general. Hard to know whether the bosses know they are losing good workers in the way you say – probably some do and think it’s a reasonable trade off, others believe the nonsense they spout. But I think there are limits to those trade offs, and the World Cup is a good example. A lot of it seems like cheapish box-ticking/window dressing to me, a bit like the UK Govt sanctioning Russia (though not that cheap for the poor and vulnerable who will be shivering this winter).
With regard to the World Cup in Qatar, yes it’s patently obvious that those companies are selling one message to their market in the US and another to the world. Absolutely, profit (and their executive bonus) is a factor in that, and their overall position is hypocritical, lame, stupid and absurd. We all get that. But my point remains that Noah’s simplistic framing of the corporate situation as being that companies will immediately do whatever they can to evade the sanctions by whatever legalistic means they can is just wildly incorrect and hopelessly naive.
Companies lose market share and go bust all the time despite pursuing profits. If you’ve ever been involved in running a company you’ll know how easy it is to screw up.
I will grant you that if the wrong incentives are in place directors can make decisions that are good for them but bad for the company. That happens a lot too.
But based on my experience, screwing with a company’s profits just for ideological or moral reasons? I just haven’t seen it with the exception of owner managed companies that have the luxury from time time to time of doing “the right thing” for an employee or for their close community.
Can oil sanctions work on Russia? Well, hmmm let’s. Businesses are threatening closure once again because of rising fuel costs, those on fixed incomes may have to chose between heating their home or food, the price of food and fuel have skyrocketed. I guess the simple answer to the simple question is HELL NO. Stop the sanctions. The only people being hurt are UK/EU/USA citizens. Honest Europeans, Biden doesn’t have a clue. Stop bowing to his every wish. Think for yourselves. Believe me, the USA needs you just as much as you need them.