Adapting to the new environment for Russian petroleum exports

The Wall Street Journal is still useful for just-the-facts-ma'am coverage of some business issues that the political news might not emphasize so much. (I hope the ancient "just-the-facts-ma'am" Dragnet reference hasn't become totally unintelligible!) Jonathan Ryan, Russian Oil Flows, But Increasingly Under The Radar. The link here is to the Vigour Times version dated 04/21/2022, which appears in the WSJ print version for 04/22/2022.

My Twitter feed features quite a bit of moralizing about Western countries not slamming an immediate ban on all Russian oil and gas imports. A good portion of the moralizing is directed at Germany, whose well-defined role in Europe and NATO is to be criticized for never doing enough and not showing enough leadership and then to be criticized when they do things and exert leadership for their preferred policies.

We can all be grateful that during the COVID crisis and now the Ukraine emergency, Germany didn't insist on the disastrous austerity policies it pushed during the 2008 recession and the subsequent eurozone crisis. Greece in particular may never entirely recover from the effects of the latter brand of German leadership.

No politician is especially eager to embrace policies that lead to serious economic crisis in their own country. Not even ones like in Hungary or Poland that are not subject to normal democratic pressures during elections. Of course, leaders certainly do wind up producing or aggravating crises often enough under the influence of lobbyists for particular business interests or from just plain bad economic policies. But as a rule, they would prefer not to see that particular result.

But at least on issues like boycotting Russian energy sources over Ukraine, politicians are subject to moral and emotional appeals.

Capital, on the other hand, is not burdened with a soul. So for oil companies, "bitness is bitness."

... an opaque market is forming to obscure the origin of that oil. Unlike before Russia invaded Ukraine, oil buyers are worried about the reputational risk of trading crude that is financing a government that Western leaders accuse of war crimes.

Oil from Russian ports is increasingly being shipped with its destination unknown. In April so far, over 11.1 million barrels were loaded into tankers without a planned route, more than to any country, according to TankerTrackers.com. That is up from almost none before the invasion.

The use of the destination unknown label is a sign that the oil is being taken to larger ships at sea and unloaded, analysts and traders said. Russian crude is then mixed with the ship’s cargo, blurring where it came from. This is an old practice that has enabled exports from sanctioned countries such as Iran and Venezuela.

Practical corporate executives aren't going to let a few wars crimes or leveled cities in Ukraine get in the way of quarterly profits if they can avoid it. And, obviously, they have ways of doing just that. "New grades of refined products dubbed the Latvian blend and the Turkmenistani blend are also being offered in the market, according to traders, with the understanding that they contain substantial amounts of Russian oil, they said."

One would hope that political leaders would be reluctant to get involved in any oil smuggling scheme illegal in their countries. But keeping the lights on and the automobiles driving are still priorities for them:

The U.S., U.K., Canada and Australia have banned imports of Russian oil. The EU is more dependent on Russian energy, importing 27% of its oil from the country. European leaders have debated whether to impose an embargo as well, but have yet to act, as they balance the desire to isolate Russia without inflicting pain on their own economies through higher energy prices.

It's not mentioned in the article, but it's worth noting that Germany, the largest national economy in the EU, gets something like 55% of its natural gas imports from Russia. German politicians can't afford to ignore the likely negative impact on their economy from a sudden cutoff of that flow if no feasible replacement supplies are available. German also imports significant amounts of its coal and oil from Russia.

In the neoliberal globalization gospel, this interdependency among nations is a good thing because it maximizes profits. And allegedly has the pleasant side-effect of discouraging wars. This was a major hope of antiwar and pacifist activists prior to the First World War, as well. But politics doesn't always work according to stock analysts' prescriptions of what would be best for rising profits. Nationalism and political ambitions and human greed are real. Capital may be soulless and lifeless. But the people who actually make the decisions about what to do with it are very human. Maybe in a Star Trek future, androids will someday be able to handle things better.

Meanwhile, we're stuck in a messy world where people make decisions that sometimes turn out to be bad. And when it comes to war, the decisions are way too often really bad. But this is a factor that EU politicians definitely have to take seriously in this situation: “'The European Union fully sanctioning Russian oil would be like saying tomorrow you cut your salary by 40% and you need to continue to live as if nothing has happened,'  said Giovanni Staunovo, a commodity analyst at UBS Group AG 'In the meantime, there are huge discounts for Russian oil in the market. Some will find this environment very attractive.'”

And in a final two paragraphs that don't appear in the WSJ print edition:

EU officials are drafting a plan for a potential embargo, but the timing is still under consideration due to the upcoming French election and pushback from Germany. An embargo would likely only be implemented over time. Some worry that traders are already working out ways to keep the oil flowing.

“Even if we see some kind of oil embargo from the EU, will they remember to sanction the tankers? More ship to ship transfers away from the coast, it’s a reasonable expectation,” Mr. Johnson said.