Connect with us
[the_ad id="89560"]

Economy

Oil price cap could strike Russia’s war chest – if enforced

Published

7 minute read

GARMISCH-PARTENKIRCHEN, Germany (AP) — Leaders of the world’s biggest developed economies are weighing a cap on the price of Russian oil meant to strike at the main pillar of the Kremlin’s finances following its invasion of Ukraine — and to limit the havoc that high energy prices are wreaking worldwide.

Details haven’t been agreed at the Group of Seven summitin Elmau, Germany, but the basic idea would be to tie the price cap to the services that make trading oil possible. For instance, insurers would be barred from dealing with shipments that are above the cap, wherever it winds up being set.

Because such service providers are largely based in the European Union and United Kingdom, Russia would be expected to face difficulty finding large-scale workarounds.

Limiting the price would reduce the Kremlin’s income from oil — at the start of the war, it was about $450 million per day from Europe alone. The cap also would limit the impact of higher oil prices on inflation in consuming countries, with the cost of gasoline and diesel squeezing consumers and businesses.

But much would depend on whether Asian countries like India would go along with the price cap. A key question is enforcement, and European officials are also cautious about side effects.

“We want to go more into the details. … We want to make sure that the goal is to target Russia and not to make our life more difficult,” said Charles Michel, head of the European Union’s 27-member council of governments. “We need to have a clear common understanding about what are the direct effects and what could be the collateral consequences.”

The EU has agreed to phase out the 90% of Russian oil that comes by ship by the end of the year but is chagrined that it is still paying into the Kremlin’s war chest. EU countries, however, need time to line up new sources of oil and are under pressure from the high price of crude.

Governments are facing calls for even tougher action, such as an immediate end to Russian oil and natural gas shipments, a move that many economists say would trigger a recession in Europe.

Already, fears that supply from Russia would be lost to the global market has helped send global oil prices sharply higher, along with recovering demand from the COVID-19 pandemic. The OPEC+ alliance of oil-producing countries, including Saudi Arabia and Russia, has increased output but too slowly to lower prices.

Russia is selling less oil as Western buyers shun its supply, but the higher prices have erased much of the loss to state finances.

The country’s central bank has managed to stabilize the ruble despite Western sanctions, in part with help from oil earnings. International benchmark Brent crude is trading at $113 per barrel, up from $79 per barrel at the start of the year.

One result has been pump prices hitting an all-time high of over $5 per gallon in the U.S. and over $7.50 in Germany.

“At current prices, this entails massive profits for the Kremlin,” said Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels. “Should the G-7 agree on a price cap for Russian oil, that would be a very important step to limit Putin’s windfall revenues.”

Tagliapietra said the delayed EU boycott on Russian oil was “too little too late,” especially considering Russia’s cutoff or reduction of natural gas to 10 EU countries in recent weeks. Western officials say Russia is “weaponizing” energy and exploiting Europe’s dependence on Moscow’s supplies.

Russia has been able to find buyers outside the West as Asian customers — like India and China — have replaced the EU as the biggest buyers of oil shipped by sea.

Due to sanctions, Russian oil is trading at a steep discount to international benchmark Brent, fattening the profit margins of refiners in India who turn crude into gasoline. And some Russian oil sales have simply gone off the books.

Once Russia oil is refined into gasoline or blended with other crude, it’s hard to say where it came from, especially if no one wants to look too closely.

“It is questionable whether countries like India and China will agree to cease purchasing Russian oil, especially as it is trading at a significant discount on the global market price,” said commodities analyst Carsten Fritsch at Commerzbank in Frankfurt, Germany. “Instead, India is helping Russia to continue selling its oil despite the West’s sanctions.”

Fritsch said India was willing to provide safety certification for more than 80 ships belonging to a Dubai-based subsidiary of the state Russian shipping company Sovcomflot after Western certification bodies were unable to do so because of sanctions.

Since European refiners started shunning Russian oil in late February, Russian crude oil imports to Europe fell from 2.04 million barrels per day to 1.49 million between March and May, according to Rystad Energy. Russian-origin oil imports by Asian refiners including China saw a corresponding 503,000-barrel-per-day increase.

“The expectation that Russian crude would cease to be traded on international markets has not transpired, and instead the steep discount on Russian crude has seen vessels redirected to alternative markets,” said Wei Cheong Ho, a vice president at Rystad Energy.

“While the cost of financing these vessels and trades has increased significantly due to be freezing out of the Western financial system, the discount on Urals is too attractive for some refiners to ignore,” Ho added.

The Associated Press

Storytelling is in our DNA. We provide credible, compelling multimedia storytelling and services in English and French to help captivate your digital, broadcast and print audiences. As Canada’s national news agency for 100 years, we give Canadians an unbiased news source, driven by truth, accuracy and timeliness.

Follow Author

Economy

Luxury goods tax on super-rich could hit electric vehicles: expert

Published on

By Marie Woolf in Ottawa

A new tax on yachts, luxury cars and private aircraft designed to hit the super-rich could also cover vehicles meant to help the environment, a tax expert warns.

The luxury goods tax, which will come into force on Sept. 1, will cover cars and SUVs, as well as private planes and helicopters, worth more than $100,000.

The federal tax will also cover yachts and boats — including motorboats — worth more than $250,000.

But senior tax lawyer Héléna Gagné says the new tax could also hit some electric and hybrid vehicles, including Tesla and BMW models, which cost more than $100,000.

The federal government has been encouraging Canadians to invest in clean technology and zero-emission vehicles, which can carry a higher price tag than cars that run on fossil fuels.

Gagné said the thresholds for the tax could also affect people who would not be regarded as wealthy, but have saved up to buy a private plane for a hobby.

“It seems to be assumed that it is only the wealthiest who will be impacted by the luxury tax but it is not necessarily the case,” said Gagné, a partner at Osler, Hoskin & Harcourt LLP. “It can also impact indirectly taxpayers who may not consider themselves as being among the wealthiest but who may decide to purchase an electric vehicle with a retail sales price that happens to be over the $100,000 threshold.”

Adrienne Vaupshas, a spokeswoman for Finance Minister Chrystia Freeland, said the measures, originally proposed in the 2021 budget, are not designed to hit the middle class.

She said the threshold for the tax for boats was deliberately set at $250,000 so it would cover superyachts and not middle-class families buying boats.

Vaupshas said it was “only right and fair that the very wealthiest are asked to pay their fair share.”

“The government was re-elected on a platform that included a commitment to bring forward a luxury tax on yachts, private jets, and luxury cars and implementing this measure is a priority,” she said.

The tax was originally proposed in the 2021 budget. It will cover luxury cars, planes, and boats bought for personal use and leisure. Commercial vehicles, including small planes selling seats, and emergency vehicles are among the classes of vehicle exempt from the new tax.

The tax amounts to either 10 per cent of the taxable amount of the item or 20 per cent of the amount over the price threshold — whichever is less.

The NDP has been putting pressure on the federal government to do more to tax the super-rich. Measures to increase taxes on the wealthiest people in Canada, however, were not included in the Liberal-NDP confidence and supply pact.

NDP critic for tax fairness and inequality, Niki Ashton, said at a news conference last month that she wants the federal government to close loopholes she says are being used by the super-rich and corporations to avoid paying billions in taxes.

This report by The Canadian Press was first published Aug. 11, 2022.

Continue Reading

Economy

Plastics producers ask court to quash planned federal ban on single-use straws, cups

Published on

OTTAWA — More than two dozen plastic makers are asking the Federal Court to put an end to Ottawa’s plan to ban several single-use plastic items including straws, cutlery and takeout containers.

It is the second lawsuit filed in the court by a coalition of plastics makers calling themselves the Responsible Plastic Use Coalition.

The first suit filed in 2021 seeks to overturn the government’s decision to designate plastics as “toxic” under the Canadian Environmental Protection Act.

Environment Minister Steven Guilbeault used that designation to publish regulations that will ban the sale, import and production of six plastic items.

The second lawsuit filed in mid-July asks the Federal Court to quash the ban, prohibit the government from using the act to regulate single-use plastics and prevent the ban from being implemented in the meantime.

Guilbeault says he is confident the government’s regulations will be upheld and would rather work with the industry to improve recycling than battle the sector in court.

This report by The Canadian Press was first published Aug. 10, 2022.

The Canadian Press

Continue Reading

Trending

X