Jason Bordoff [00:00:05] $60. That’s the per barrel price cap that G7 countries and Australia imposed on Russian crude oil last week. The measure will allow Western service providers to ship and insure Russian oil, provided the oil is sold at a price below the cap. The purpose is to reduce Russia’s petro revenue, which funds its war on Ukraine while still keeping its oil flowing to the global market to keep the oil prices that we all pay from going up. This measure breaks new ground as a tool of economic statecraft, and analysts the world over are anxiously watching for how the oil market and the Russians might respond. The stakes for the war in Ukraine and for global energy supplies are significant, to say the least. Will the price cap achieve its objective? What might the unintended outcomes be? And what does this mean for the future of energy policy? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Today on the show, our own Eddie Fishman and Tatiana Mitrova. Eddie Fishman is a senior research scholar here at the Center on Global Energy Policy and an adjunct professor of international and public affairs. He previously led the U.S. State Department’s design and implementation of sanctions against Russia. You can find on the center’s website, too, explainers. Eddie wrote last week about the price cap on Russian oil and how to evaluate whether the policy is successful and what alternatives exist if it fails. And Tatiana is a senior research fellow here at the Center on Global Energy Policy and one of the world’s foremost experts on the Russian energy sector. Having formerly served as executive director of the Energy Center at the Moscow School of Management, Skolkovo, and as head of research in the Oil and Gas Department in the Energy Research Institute of the Russian Academy of Sciences. Eddie Tatiana and I talked about what the price cap could look like in practice and how Russia might respond. We also discussed the impact of sanctions that are already in place against Russia. I hope this conversation helps you understand what’s to come for oil markets. Enjoy. Eddie Fishman, Tatiana Mitrova, thanks for joining us on this episode of Columbia Energy Exchange. Great to have you both back with us together, I think, for the first time. But thanks for having making time to be with us.
Edward Fishman [00:02:34] So great to be here. Jason.
Tatiana Mitrova [00:02:36] Thank you. Jason.
Jason Bordoff [00:02:37] So a lot a lot to talk about, obviously, with the European energy crisis, with oil and gas prices. But in particular, the thing I wanted to have you both here to talk about, because you bring unique expertise in different aspects of Russian oil flows and the decision that was taken by the Europeans recently to put a ban in place on the import of seaborne Russian crude and then this so-called price cap that has been much in the news recently, especially in the last few days since it was announced just in advance of that policy going into effect. So I just want to deconstruct that for people. I think people have seen headlines, I’ve seen news reports about this and put it in the context of what’s happening in the oil market overall, put it in the context maybe of other things going on geopolitically. Recent decisions by OPEC. She is visiting Saudi Arabia now. How to think about what what the role of energy, particularly oil in the in the conflict plays. So let’s just start by explaining what happened. Maybe, Eddy, I’ll start with you. And even before coming to the price cap, you have spent your career as one of the world’s leading expert on sanctions, both studying it and also implementing them also on Russia. So this all started obviously, with Russia’s invasion of Ukraine and an effort to try to impose economic penalties, economic statecraft. As a result of that, there’s a variety that have been put in place and we’re going to come to those later in the conversation and ask you how those are playing out. But for the most part, with a few exceptions, oil was not part of that and just became one a few days ago. So talk about what was done a few a few days ago. What were the steps taken in terms of sanctions, an embargo, whatever word is appropriate for Russian oil into Europe and what that might mean for the rest of the world, Sir.
Edward Fishman [00:04:31] Jason? So, look, you know, from the beginning of the war in Ukraine, the West has really tried a very challenging policy, which is to impose aggressive sanctions on Russia without hitting Russia’s energy sector aggressively. And the reason that’s challenging, of course, is because energy and particularly oil, is the lifeblood of Russia’s economy, now, accounting for in some years as much as half of its budget revenues. The way I look at it is, you know, trying to, you know, impose significant sanctions on Russia without touching its oil sector is sort of like trying to master Russian literature without reading Tolstoy. It’s just impossible. You’re missing the core of the matter. At the same time, the sanctions have been pretty effective.
Jason Bordoff [00:05:10] Just put that in context for people. The you know, the share of how how should they understand how big oil is for Russia’s economic well-being?
Edward Fishman [00:05:17] Two thirds of its exports, revenues, as much as half of its budget revenues. And what we’ve seen since the beginning of the war, Jason, is that as the rest of Russia’s economy has fallen into a massive recession, non-oil and gas related export revenues have collapsed. Right? So the economy has become more and more dependent on energy as the war has gone on. So what happened on Monday is, you know, it’s a long time in the making. You know, it’s a decision that really was made, you know, in the in the late spring by the European Union to impose an embargo on seaborne imports of Russian crude oil. So what that means is that, you know, the European Union itself has stopped by and large buying Russian oil by sea. There’s still some oil coming in to Europe via pipeline. And there are a couple of other small exceptions. But by and large, Europe who had been, you know, by far Russia’s biggest customer for oil before the war, you know, has fallen out of the equation. At the same time, the West has imposed this really novel policy called the price cap, which has two somewhat contradictory goals. On the one hand, it attempts to cut Russia’s oil revenue because, you know, the oil embargo in and of itself obviously reduces one big buyer of Russian oil. But it’s always possible that Russia could find other buyers and continue making just as much oil selling at just as much money selling oil to other other places. And so the goal of this price cap, on the one hand, was to cut Russia’s revenues, even when it’s selling oil, for instance, to China and India without spiking global oil prices. And and that second goal, I think, especially in recent months, took on really kind of the lion’s share of what the West was trying to achieve. And the goal there was to really allow Russian oil to keep reaching global markets. And, you know, again, these are somewhat contradictory goals. The way that the West has tried to achieve it is by using its dominance over service providers. So, for instance, shipping companies, insurance companies, financial services, you know, which play a massive role in all shipments of Russian oil, even ones that go to places like. China, India and Turkey. I just to put that in perspective, Jason. You know, about 50% or more of Russian oil is shipped on European vessels, most of which are Greek vessels, and 95% is insured by European companies, most of which are, you know, the British Pier nightclub. And then, of course, underlying all of this, all of these service providers, the shipping companies, the insurers, the traders rely on financial services by major global banks, all of which have branches in the United States and therefore abide by U.S. law. So basically what the West is trying to do is to set up a service providers cartel and condition access to these services on buying Russian oil for a for a low price and specifically below $60 a barrel. That’s the initial price. The West has retained the right to change that over time, but that’s the goal.
Jason Bordoff [00:08:13] There’s a lot and what you said I want to come back to, but let me, Tatiana, ask her your reaction or anything you want to add to that. And then in particular, just again, to level set where we are and what was done. Help our listeners understand how dependent Europe is on Russian crude and how much was flowing. How much are we talking about? And then and then what was done on December 5th that was in an embargo. It’s not secondary sanctions. It’s not the U.S., as we did with Iran, saying we’re going to impose financial sanctions on anyone in the world who buys Iranian oil. It was Europe saying and we’ll come back to services in a moment. But just for oil, Europe saying we’re not going to buy Russian oil seaborne exports of Russian oil. And then certain countries made sort of voluntary pledges not to buy pipeline imports. Just help me understand if I have it right and what that means in terms of total volumes and how much would have to find other places to go beyond Europe, both seaborne and pipeline.
Tatiana Mitrova [00:09:11] You have many questions, Jason. So, first of all, Russia was exporting in October about 7.7 million barrels per day. These are volumes very close to 2019 before COVID, before the quotas and opec+ agreement. So basically, in terms of volumes, Russian exports, they remained pretty stable. There was some decline in April and March, but then the volumes have recovered and this is basically very important condition of any new sanctions because the global oil market is tight and there are just few potential replacements for Russian oil. And given the threat of global recession, nobody wants to destabilize global oil market by removing Russian oil from it. So the situation is quite different compared to Iran, to all the embargoes imposed historically. Nobody wants just simply to move Russian oil out of the market. The question is that the target of this regulation is to keep Russian flows but to reduce Russian revenues. And this is a tricky point. And so introducing simultaneously embargo in Europe.
Jason Bordoff [00:10:34] You said 7.7 million of exports. And how much of that was to Europe are it?
Tatiana Mitrova [00:10:39] It used to be close to .2.3, 2.5 million barrels per day. It has already reduced by 1 million barrels per day during the last months. So now it’s 1.2. 2 million barrels per day are seaborne crude and another 0.8. Pipeline crude oil. All these exemptions for Hungary and the other countries in in the center of Europe, that’s a lot. It’s approximately 10% of European oil demand. So suddenly removing these volumes from the market, that’s already a threat, especially as you know, we are discussing the European energy crisis. So Europe is running out of gas. There are problems with nuclear and hydro. So this is also a challenge how to arrange how to impose this mechanism smoothly enough in order to the West not to be hurt more than Russia will be hurt.
Jason Bordoff [00:11:47] And in global oil market, where until recently they’re still pretty high. But oil prices been coming down recently. But generally over the last year, concern about high oil prices, not much extra oil supply out there, whether it’s strategic stocks or Saudi Arabia snowpack or the growth of shale, which is not what it used to be at these prices. And so, as you said, there’s concern about saying if a couple of million barrels a day suddenly can’t go to Europe, is it going to go somewhere else and then you maintain the same supply or is it going to lose an ability to come to market in? Clearly so. In I think it’s fair to say. Tell me if you agree with this. Maybe I’ll start with Tatyana. You know, this is where oil is different than gas. If if you see a disruption in Russian exports of gas to Europe, either because Europe decides to stop buying it or in this case mostly Russia decided to stop selling it to impose economic pain on Europe. It’s hard to take natural gas that would have gone into a pipeline to Europe and find lots of other ways to send it to the rest of the world. There are many more options when it comes to crude oil. So you would expect much of that supply to find other ways to come to an integrated global market, a big bathtub of oil, basically. But this comes to Eddie’s point, which is this is not just about shipments. This is also a a ban on the import, but also a ban on providing services. That’s why it’s interesting, you called it a service providers cartel where as many people have referred to this as a buyers cartel. And they are you’re talking about insurance and financing and other things. So how easy is it to find alternatives to that? Because that tells us whether a price cap mechanism of some sort may be needed at all. If it turns out that there’s lots of other ways to get insurance, lots of other places to get ships, then you would expect that a lot of this oil would flow to market anyway. So, Eddie, what do we know about that?
Edward Fishman [00:13:48] You know, this policy, as I said before, is months in the making, right? The G7 first committed to doing it in June, and it really entered the kind of policy discussion all the way back in April, maybe even March, because, again, you know, oil anyone who’s trying to impose significant sanctions on Russia, you have to start thinking about oil. And all the way back in March and April, we were worried about, you know, higher oil prices. And so this is this was something that was on folks mind. And this was one of the policy ideas that came up. The reason why the West thought that, you know, a service providers cartel could work again is because of this vise grip that, you know, Western companies have over services, be it Greek tankers and British insurance companies, etc.. That said, given that Russia now has had so much time, you know, months and months and months to prepare, there’s a lot of evidence that, you know, some of that vise grip has been loosened. There are reports that Russia has acquired potentially even more than 100 tankers, many of which are old and would have probably been scrapped in the coming years, which I think is probably the biggest bottleneck is the ships. Right. Because of course, if you can’t put the oil on ships, there’s no way to get it to market. You know, insurance and other things are maybe somewhat easier, right, Because the Russian government can and has stepped in to try to provide sovereign, sovereign insurance guarantees. A Russian plane. The other the other thing is, though, that it’s not totally clear that this 100 tankers that they’ve acquired is actually enough to carry all of Russian crude. And my best sources, the people I trust the most, tell me that they’re still probably 100 tankers short. So what that suggests is that it could be quite a long time before Russia actually can ship as much volume of oil as the shipping before December 5th without using any G7 services. So, you know, of course, we’ll know. We’ll know for sure in the coming weeks, Right. Well, it won’t take long for us to see how significant Russia’s own sort of mitigation strategies have been. But as of now, the best guess is that they cannot actually ship all of the oil that they would otherwise ship without using G7 services.
Jason Bordoff [00:16:06] I was talking to someone who runs a Greek shipping firm yesterday who said it’s been a very good last few months to sell old tankers that you otherwise might have scrapped in the coming years. And that’s to your to your point. And just so people understand, it’s not just that this Lloyd’s of London or some insurer providing insurance for a shipment would violate now EU rules. But if I understand you, any European ship or any Greek shipping company, whether it is using Western insurance or not, if you’re buying at a price above the price cap, you are currently in violation of EU rules. Is that right?
Edward Fishman [00:16:40] Yeah, that’s right. And so I think one thing that’s really important for folks to understand is that the price cap applies to any G7 company that could be potentially in the supply chain, regardless of who else is in it. So let’s let let’s take an example of a Chinese merchant oil trader buying oil from Russia. If they buy oil from Russia and it goes on a Greek ship, but it’s insured by a Russian, Russian nightclub, and basically the only service that’s provided is by this Greek ship. That Greek ship still has to get a signed attestation from the China merchant refiner. And basically that says that that says that the oil was purchased at a price below the cap, which is currently at $60. If they don’t, they’re in. Violation of European law and could be subject to, you know, civil and criminal penalties. So, yeah, and the same would apply, for instance, in a scenario in which the buyer were an Indian merchant refiner and they were shipping it on a Russian vessel, but it was insured by, you know, a British nightclub. Right. So this applies regardless of who in the chain is in the G-7.
Jason Bordoff [00:17:45] So I want to come back to how one thinks about enforcing those things and evasion. And a button is those supply chains are are big and sometimes shadowy. And we’ve seen lots of examples of that in the history of global energy trade. But I just curious, Tatyana, your your anything you want to react to with what Eddie just said and also whether you agree? I mean, what Eddie is saying is actually this EU ban without a price cap will come to what impact it will have in a moment. It really does have teeth. Even if you want to find Western insurance or something else, it’s going to be really hard to move Russian oil to market that otherwise would have gone to Europe without some mechanism like a price cap. Is that. Is that your understanding? I mean, you know, the the energy trading world, the oil world and Russia pretty well.
Tatiana Mitrova [00:18:30] Yes, definitely. It puts additional obstacles and additional transaction costs for the Russian suppliers. And I would expect that the initial heat will be feasible like it was in March and then that. Pril So some disruption of the existing supply chains, though Russia had enough time to prepare. Actually the ban was announced well in advance. Nevertheless, I think there will be some troubles and disruptions, but at the same time, Russia has already rerouted 1 million barrels per day, which was historically going to Europe. So now it has to do the same with the 1.2 million barrels left. It is a challenge, definitely. But what is important? All this rerouting is executed by the Russian oil companies, not by the Russian government. The companies are quite different and they are mindset. They are very smart, they are very adaptable, they are commercially oriented, and they know how to build these supply chains. So it it will be basically the market forces that will push them to find different bypassing routes to build or the chains of intermediaries. They are actually building up this shadow fleet. Indeed, it’s a very interesting I mean, nobody knows the exact numbers, so there’s not something transparent bullet to the Ross some guesses. And we can see indeed a growing demand for the used tankers all over the world. They are building, they are trying to create a Russian insurance company. They are getting in contact with the insurance companies and shipping companies all over the world. And ah, Eddie, actually there is a very interesting thing regarding 90 days in the regulation, which probably gives a certain hope for the Russian companies so that they are potential counterparties in the shipping and insurance world will not be that resistant. But at the same time Russians will have to spend more money in order to remunerate for additional risk. So the transaction costs so they will rise. And what we see already now is amazing growing freight costs. So actually the in order to free a tanker from an average seas to Singapore, which is like a proxy for Russia’s deliver all the oil deliveries to Asia are the rates they’ve increased seven times compared to the beginning of this year. They are just skyrocketing because there are not so many tankers available. Yeah. And because of all these associated risks. So the even if it is $60 per barrel price cap or something around that, you can see the level of the current oil prices. But then these freight rates, they are actually eating the margin of the Russian companies. And then the real full price for them is like 40, $45 per barrel or which is a completely different story. It’s not the, you know, the European companies or Ukrainians who benefit from this. These are these shadow fleet or some intermediaries who are getting the money. Yeah, it doesn’t look very good, but it’s not Russian budget, it’s not Russian oil company. So probably that looks like a better option.
Jason Bordoff [00:22:13] If I understand you correctly. You’re saying that even before any price cap might have been implemented or even thought about. What Europe did. Even if Russian oil can find other places to go, still imposes some economic pain on Russia because there’s a cost to them to do that. I think. Is that correct? That’s what I heard you just say.
Tatiana Mitrova [00:22:36] Yes, But then. But then. Soltis Jason. That was quite obvious because transportation from Lugar to Rotterdam is definitely much shorter than from east longer to Singapore. And so simply, the transportation costs are rising due to these redirection. But then when you add to that also price cap and all the risks associated the freight rates, they are just going through the roof. And because there are not so many tankers available and not so many shippers actually ready to get engaged in those operations, those who are already, they claim, the highest price.
Jason Bordoff [00:23:19] So I just want to come back to the question I asked you a moment ago, just very briefly, if I understand your answer to it. Before you had a mechanism to continue to use Western services, i.e. the price cap, was your view is your view, Tatyana, that a European ban on services, the shipping, the insurance, was that going to have a big impact on how much oil Russia could export or, you know, it has a little bit of an impact, but a couple of months go by and they sort of figure out how to get around that.
Tatiana Mitrova [00:23:49] I would say it wouldn’t have a dramatic effect on the volumes, maybe, as you said, for a couple of months, but it will definitely affect the margins.
Jason Bordoff [00:23:59] So this, I think, takes us to why we’re doing this. We have this thing called the G7 price cap. I want to put it a little bit in historical context. I mean, you’ve studied the history. There’s nothing new about sanctions. We’ve been trying to figure out ways to do different types of sanctions for a long time. But this is an innovative idea and innovative mechanism. The challenge with sanctions, I think on my desk behind me, you can see, you know, the book by your friend Richard nephew, when he was a fellow here, The Art of Sanctions. And the challenge is how do you impose pain on your target and not impose pain on yourself? Because we all depend on an oil and it’s a global price. So let’s let the oil keep flowing, but let’s take the revenue away by limiting how much one can pay for it. And that kind of there’s these two two objectives, I think getting right with the price cap. One is to limit Russian revenue and the other is to make sure Russian oil continues to flow to market. And you can design a price cap in different ways to air on one side of that or the other. So tell me if I have those goals right and then what do you think about the way this has been implemented? What is the if there’s a primary objective, what is it?
Edward Fishman [00:25:05] Yeah, I do think you have you have those goals. Exactly right. And but I would say there are, you know, some precedents and you mentioned the historical context, you know, going back to 2011 when, you know, the United States was ramping up sanctions against Iran. We were in a kind of a similar situation back then in which Iran’s economy was hit with sanctions from all angles except for its oil sales. And the economy was pretty resilient, actually, much more resilient than Russia’s economy is today. You know, Stuart Levy, who was the undersecretary of the treasury for terrorism and financial intelligence for the second Bush term and into the first Obama term, you know, spearheaded this whole new group of financial sanctions that got a lot of, you know, put pressure on Iran. But Iran’s economy continued to grow throughout that period. And so in 2011, Congress, in partnership with the Obama administration, started thinking through ways to actually cut Iran’s oil revenues. And but Congress, of course, wanted to do always overshooting, was to just impose, you know, a sudden sort of block on all Iran’s oil sales, basically threatening U.S. secondary sanctions against anyone buying Iranian oil, regardless of where they were. And this was hard because Iran was exporting two and a half million barrels of oil a day at the time, most of which was going to China. And so the compromise that the Obama administration reached with Congress was to basically continue to allow Iranian oil to reach global markets, but to require importers to significantly reduce their volume of their purchases every six months. And so in some ways, it was kind of a similar policy in that the goal was to gradually reduce Iran’s oil sales without spiking global oil prices. The only reason for the significant reductions was because the thought was if there was a sudden reduction. If you said you have to go from 2.5 million barrels a day to zero overnight, that you would lead, that would cause a price spike. It was a different mechanism, right? There was a threat of secondary sanctions. It focused on volume of exports as opposed to price, but it was a similar policy. The other thing that the U.S. did at that time, Jason, against Iran, which I think is also, you know, wound up being almost more important than the reductions is the U.S. imposed. Basically thorough financial sanctions on Iran that required Iranian oil revenues to basically be custodian in foreign bank accounts. So, for instance, when China was buying oil from Iran, that payment would go to a central Bank of Iran account in China, and it could only be used for non sanctioned bilateral trade between China and Iran. What Iran decided was they didn’t want to buy that much, you know, billions of dollars worth of Chinese widgets. And so it led to over the over only about two years, about $100 billion of Iranian revenues accumulating in foreign bank accounts. So but I would say with the price cap and I think Tatyana made a really great point in her last answer is that it doesn’t make sense to view the price cap as a policy in a vacuum because it exists in sort of the context of all these other sanctions. It exists in the context of the U.S. embargo that we imposed on Russian oil back in March. It exists in the context now of the European embargo on seaborne crude, which, as Tatyana rightly notes, has forced Russia to ship its crude oil all the way from the Baltic Sea to Asia, which is a very long and costly journey. And it exists in the context of significant financial sanctions, right? Not thorough financial sanctions, not the type we had on Iran, but significant. And so I think all of those factors have come together to put really significant downward pressure on the price of Russian oil. And this pressure, of course, has existed since March. Right. I mean, the interesting thing, Jason, and I think this is a very important point for everyone to keep in perspective, In January of this year, the difference between the Brant and Urals crude price was about $1. Right. So think about that. $1 within a week of the of the war starting, it dropped to $20. And then ever since it sort of hovered in this 20 to $30 range, the reason that it dropped was an expectation that sanctions would build over time. And what has happened is those sanctions have built. And I do think that even if the price cap ends up just locking in that discount in the long term, that’s got to be viewed as a major, major policy win because, you know, absent the price cap, absent all of these other tools that have been used against Russia’s energy sector, of course, over time, the perception of risk of buying Russian oil would have decreased. And the the difference between Urals and Brant probably would have decreased as well.
Jason Bordoff [00:29:47] Yeah, there’s a lot in what you just said. And that last point sort of, you know, on the one hand would raise the question of why it was needed if you had this big discount and then as you said, maybe that would have eased over time. So you could lock that in. And is the price Russia’s able to get driven by the market and transportation costs? And what refiner that’s not optimized for Urals is willing to pay or is it driven by a U.S. and European policy restriction? And how does Putin and Russia respond to that? And is there a risk in the other direction? So I want to come back in a moment to how to how they might how Russia might respond. But, you know, it’s interesting. You gave that historical example of Iran and said there’s a lot of similarity. I think before you and I understand what you were saying, I think I would have my instinct would have been there different because Iran was focused on taking the oil off the market. To your point, let’s just give it a longer runway. Let’s take time for the market to adjust. So well, we’ll extend that with these significant reductions every six months. This is don’t stop the oil from coming to market. Just reduce how much revenue they can get. But if I hear you right, what I hear you saying is you should think of this policy as one that evolves over time where right, right now the prices at a certain level and it’s actually above what Russian most Russian crude is selling for. But as the market kind of adjusts to this and other sources of oil may or may develop as alternative supplies that could be ratcheted down in the same way the allowable amount you could buy from Iran could. Is that that where you saw a similarity?
Edward Fishman [00:31:23] Definitely. And I think the key similarity, though, Jason, is, is why did we want significant reductions for Iran’s oil sales? Why didn’t we just say go to zero overnight? It was because we had a dual goal. We wanted to cut Iran’s oil revenues while not spiking global oil prices. That was an express objective at the time. If we didn’t care about spiking global oil prices, we would have said go to zero overnight. Right? So I agree that again, the mechanism is different, the focus is different. I think the Iran policy relied much more heavily on the stick versus the carrot, whereas the Russia pellet policy is really focused on the carrot. It’s telling Chinese and Indian refiners, hey, go buy Russian oil as cheaply as you can get it. You know, make a make a killing. Look at this arbitrage opportunity. Buy a bunch of cheap Russian oil, refine it and sell it for massive margins. Right. Ditto for, you know, Western traders. By the way, Trafigura is up the world who still can buy Russian oil so long as its destination is not, you know, to Europe or any of the other members of the sanctions. Coalition. So I do think that over time, Jason, assuming that sanctions on Russia and the Russian energy sector, specifically oil, continue to increase regardless, honestly, of the level of the price cap, you probably will still continue to see downward pressure on the price of Russian oil. It could be through lowing lowering the cap from 60 to 50 or, you know, but it also could be for by, you know, increasing financial sanctions. There are still a number of very large Russian banks, and particularly the banks that are involved in the energy trade that are exempt from sanctions. Right. So if those banks, for instance, were to come under under sanctions, that could, you know, again, increase the, you know, the perceived risk of risk of buying Russian oil, increased costs and decrease the price. And so that was my point. Also, in terms of viewing the price cap in isolation, doesn’t really make sense. It exists in this broader context of sanctions. Right. And and sanctions, by the way, are the reason that Russia’s shipping costs have gone up. That’s because you can’t ship Russian oil to Rotterdam anymore. You got to ship it all the way to Asia. And there’s also the perceived risk of, you know, financial sanctions.
Jason Bordoff [00:33:33] I want to I want to come to you on a minute, but one more quick question for you. The or maybe it’s not so quick. You know, you’ve you wrote in two great explanatory pieces for the Center on Global Energy Policy. You explained the price cap. And I think you started, if I remember the first sentence right, the purpose of the price cap is to reduce Russian revenue. And I want to come back to the purpose We kind of said a moment ago there are two purposes. Make sure the oil keeps flowing and reduce Russian revenue. And then the question is, which is more important? And when I think and a simplistic observer like myself might look at what was actually and say, well, let’s look at the evidence, what we know is when they actually had to make a decision after months and months of negotiation, the level of the price cap was set above the price at which Russian oil is currently selling for. So that means if you were worried that you couldn’t get Western insurance or use Greek tankers and you want to make sure you can keep doing that, you don’t have to change anything. Just keep doing what you were doing before. And the price at which most Russian oil was sold, that qualifies. So doesn’t that tell us that this was not much about reducing Russian revenue is really about making sure the Russian oil keeps flowing?
Edward Fishman [00:34:40] I do think that the more top of mind goal in setting the price was to ensure that Russian oil keeps falling. I think that that’s unquestionable was it wasn’t the case for every member of the sanctions coalition. The reason the price for instance went up at 60 instead of 70 is because you had countries like Poland and the Baltic States pushing for a price as low as 30. Right. So there are divisions within the sanctions coalition. I would agree that the most powerful members of the coalition, like the United States, for instance, were pushing for a higher price for the reasons you suggested. That said, again, going back to the Iran example, you know, the Iran significant reduction sanctions went into force on New Year’s Eve of 2011. We didn’t require significant reductions until six months in the future. Right. So it’s not abnormal, especially for sanctions that affect such big parts of the global economy like oil, to have a bit of a gradual implementation period. And the one thing I will just, you know, sort of maybe add on to what you said is that even though the price was set above what Russia was currently selling most of its oil for, it’s not actually the case that as of December 5th, service providers can just go on business as usual. There’s a significant change that happened on the stroke of midnight or actually 12:01 a.m. on December 5th, which is that all of a sudden those service providers had to comply with the price cap policy. They had to request these attestations from buyers. If you are a buyer like a trading company, you had to keep very, very rigorous records of the price that you were buying it for. Basically what I sort of look at this as, as sort of a sanctions policy maker, it’s a way to condition market participants to comply with the policy. I think if you tried to set the price at $30 right out of the gate, when there is no sort of muscle memory of compliance, the risk of policy failure would have been very substantial. And so even though I don’t think it was necessarily intentional that we got kind of this Goldilocks price of $60 a barrel, I actually think it wound up in a pretty good place. If your goal if one of your important goals is to cut Russian revenue over time.
Jason Bordoff [00:36:51] That’s a really interesting perspective from the standpoint of someone who’s implemented sanctions for for many years. Tatyana, I want you to respond to all of that. But also in particular now view it from the Russian standpoint. So what we said just a second ago is you keep selling oil for what you’re selling it for before you’re not bearing some additional penalty. Something has changed because now your buyer is requesting an attestation filing paperwork that I’m not minimizing what has to be done as that he said a moment ago. But from Russia’s standpoint, they have said they. Won’t sell to anyone who complies with the price cap. If complying with the price cap doesn’t mean paying less. It means demonstrating compliance because you’re getting the attestations, etc.. Is Russia going to sell its crude Urals? That’s what it’s called under the price cap, or is it going to refuse even though it’s basically what the price it was selling for before? Or is it going to be different if you’re using Western Insurance than if you’re not using Western insurance?
Tatiana Mitrova [00:37:47] Yeah, that’s a great question. And I think the whole oil world is now looking for Russia’s reaction. I would say that the official rhetoric in Russia is very optimistic. Oh, come on, $60 per barrel. It’s absolutely comfortable price. We felt pretty good even at $40 per barrel in 2018. So that’s absolutely fine. And basically the breakeven price is like $35 per barrel. So everything above that goes as a profit. But actually the raw Warriors and the key challenge is that once this experimental regulation is introduced, it will start to create records, it will start to create transparency over all the schemes, all the routes, all the logistical chains. And that suggests that at a certain point, as Adi said, much lower level could be introduced with very strict control. So I would say that the next half a year it will be spent mainly for implementation, just regulatory implementation of all these algorithms or on implementing these paperwork requirements, but also on debugging this system. There will be some holes in the regulation and they will be caught during this half a year which will allow later on to tighten the belt. Now, and this is also understood in Moscow. So what they are discussing at the moment are definitely not refusing to sell at anything below $60 per barrel because then the volumes would collapse. It is refusal to sell to the countries once again, the countries, not the companies, which is also very interesting, which have announced officially if that they join this price cap club. Yeah. So it’s rather about messages, not about the real business. And obviously like in China, in India, you can imagine India says never ever we will join this coalition. We are regarded as non-market. Yeah, but then Indian companies start to negotiate with the Russian companies and guess what they will say, look, guys, $60 per barrel, that’s maximum that you can get. So probably you would be happy to sell this oil for us at $57 per barrel. And so there are not so many alternative customers, Russian oil companies. So we’ll have to accept it. But as India hasn’t officially announced anything, that’s absolutely fine. And right now there are three options under discussion in the Russian establishment, ie either to completely legally ban oil supplies to the countries which have supported this price cap. This is the hardest yeah, the toughest regulation on the discussion or to fix the the cap discount for oil price so which is also quite funny or the most likely option I assume just to ban the wording in the contracts mentioning price cap and it is really easy to obtain because no, the traders nor the buyers in non-OECD economies so will be actually keen to have it in the contracts. So basically I would rather regard it as a rhetorical Russia needs this money of Russia will most likely not stop supplies. Yeah, but it needs to keep the face and that it will pack it properly.
Jason Bordoff [00:41:43] That’s really interesting. And so if it’s not in the contract, if it’s not a country that has stated it will comply and you’re a refiner in India or wherever, and you want to purchase a cargo of Russian crude and use a great tanker and use Western insurance, and your price that you are paying is below the price gap. You know, Russia will will sell it to you. And maybe there’s a little extra bargaining leverage for those buyers, which in a sense is one of the arguments Treasury has been making about why this might not have had no impact at all, why it could actually have some impact. Yeah, if I were Russia and my goal was revenue maximization and we should acknowledge Putin has done a range of things that are not economically rash. And also there may be other motivations. And we should acknowledge for our listeners there’s different types of Russian oil. Most of it Urals, as is called, is selling for less than $60. Some of it, Tatyana, I think is is certain benchmarks, certain types of Russian oil are selling for more than 60 right now. You might sell Urals at the cap or below it to ensure customers in an India like Reliance or whoever can access Western services and then use your own ships and insurers to sell those other types of crudes like Espo? Is that that sort of what you expect?
Tatiana Mitrova [00:42:57] Yeah, absolutely. I’m sure that the oil companies will optimize their portfolios and that they will be quite sophisticated calculations on where to send which sort of oil and how to arrange each operation. They have sufficient capabilities to do that properly and to keep margins as high as possible. But most likely those margins will slowly, slowly start to shrink. So this is this is basically how all the sanctions are working, not an immediate effect, but slow, slow.
Jason Bordoff [00:43:34] So can I ask both of you economically what impact sanctions to date have had on the Russian economy? How much is Russia’s economy struggling or not? And then what additional impact might there be from this combination of EU ban and price cap? It sounds like I hear you saying it’s not zero, but but it might be modest, at least unless this policy evolves and is significantly strengthened in the months and years to come. But maybe I’ll start with you and then Tatiana zooming.
Edward Fishman [00:44:01] Out for a second. You know, sanctions have had a major impact on Russia’s economy. And this is true no matter how you slice it. The IMF projects this year that Russia’s economy is going to shrink by about three, 3.5%. And next year we’ll see another GDP contraction of 2.3%. These are really significant when you look back sort of at what sanctions can achieve. Right. For instance, at the peak of Iran’s sanctions, the biggest hit that Iran ever took in 2012, sort of when these oil sanctions really took hold, was a 3.7% GDP contraction. So we’re seeing in the first year of the Russia sanctions without even really significantly affecting Russia’s oil revenues. That’s in line with kind of the peak of the Iran sanctions. So the Russian economy is clearly struggling. The one kind of bright spot in Russia’s economy in 2022 was oil exports. And I think what we will see in the years ahead, assuming that the sanctions at the very least stay in place and probably increase, is that Russia’s oil revenues will decline over time. And I was struck, Jason, in your recent podcast with Laura Cosey from the IEA, who said that by 2030, Russia stands to lose over $1,000,000,000,000 in oil and gas exports. And again, sanctions are the price cap is one component of this. In fact, maybe not even the biggest component. It could be a minor component of it. But when you take the totality of the sanctions, the price cap, the embargoes that various all members now of the G7 have put into place, that that ban on investment. Right. So there’s U.S., the United States and European companies can invest in Russia’s energy sector. These things are going to significantly erode Russia as a global oil and gas powerhouse over time. And so I think really, you know, no matter really, no matter what happens, unless, you know, Putin were to have a sudden change of heart in Ukraine, which I don’t think anyone expects, you know, these these sanctions are really going to significantly reduce Russian power in the years to come. And will that work on a timeline that satisfies us? Will it affect Russia’s war in Ukraine? Probably not, You know, maybe even on the margins. But will it affect Russia, Russia’s capability, Russia as as a global power? Invariably it will.
Jason Bordoff [00:46:24] Can I gently kind of challenge one thing you said and get you to respond? And then, Tatyana, let me come to you because you said, I think in this podcast of our two things, you started by talking about how critically important going after energy was to impose economic pain on Russia. And you and you noted we hadn’t done that right. Like, like, like learning Russian, reading the classics. And then I think we said this policy to date is having some impact because it’s imposing a discount. But I think you acknowledge that the priority so far is make sure that oil keeps flowing, not take away Russia’s revenue. So how can those things both be true if we’re implementing the policy that way? How does that address the first thing you said?
Edward Fishman [00:47:07] So maybe I’ll go back to the point I made, which is that the price cap is just one component of this broader sort of raft of sanctions that have been imposed on Russia’s energy sector. And I also think that the thing that’s important to note about the. Price cap in general is this is now a policy, right? This is now a law, right. U.S. companies, U.S. persons. You and I, Jason, we need to comply with the price cap. Right. As as do all companies based in the EU and the UK and Australia, the other members of the G7. So and that’s unlikely to change, right? I think oftentimes with these really sort of aggressive, sort of ambitious sanctions, the hardest thing is going from 0 to 1. It’s getting the policy out there into the ether. Right. Same thing again with the big Iran oil sanctions. Right. That took six years for us to for us to get to the point of actually imposing those types of sanctions on Iran with Russia in less than a year after, you know, Putin decided to invade Ukraine. You’ve seen a really significant sanctions on Russia’s oil sector. And the other thing just to note about sanctions in general is that anyone who bets that sanctions are going to be lifted any time soon, regardless of what sanctions program it is, invariably loses the right sanctions more often than not stay in place longer than they should, not shorter than they should. And so I think the best case scenario is that these sanctions on Russia are in place for the long term, for at least as long as Putin is in power, if not longer. And so what that tells me is, you know, this price cap, whether or not it’s the main reason that’s driving Russia’s revenues down, I don’t know. Maybe it’ll wind up being insignificant if they keep the price cap at, you know, above significantly above what Russia is selling for anyway. But I do think the combination of the sanctions is driving down Russia’s ability to to profit off of its oil and gas. The one other point this is, is more of a technical matter, but I think it’s interesting for listeners, as part of the deal that the European Union struck and this again, was really at the behest of the Polish government, was that the price cap, the initial price is set at $60, which as Jason, you rightly note, is above the current Urals price, below that spot price, but may not matter given that Russia can ship out oil without G7 services, Poland was able to get a commitment. This is again in EU regulation that every two months, starting on January 15th, the EU will review the price with an eye to setting it at least 5% below the market price for Russian oil. And so, yeah, this is not set in stone. You know, they don’t have to set it below the market price for Russian oil, but it puts a pretty significant pressure on European leaders. Every two months from now into eternity to look at this price cap and try to set it below the market price of Russian oil. So what that tells me is over time you have escalating pressure on Russia’s oil. And if and if you look at it from a market perspective, forget about the sort of narrow sanctions perspective. What you see is increasing risk for Russian oil over time and uncertainty. Right. And uncertainty. What that does is it drives up perception of risk and drives down price.
Jason Bordoff [00:50:19] Yeah, that’s really helpful. I think one important thing I hear you saying in this podcast among many is but as a former designer and implementer of sanctions is to think of this as step one in evolving process of how one thinks about imposing a policy like that, like this. Tatiana, Can you talk about what is happening in the Russian economy and what impact sanctions are having and what impact do you think this will have?
Tatiana Mitrova [00:50:41] Yeah, absolutely. So first of all, I would completely support respond to that. Sanctions are not designed for immediate punishment. They are actually taking away the future development. And this is extremely important. So don’t expect any immediate effects once the sanctions are introduced tomorrow, the economy would collapse. No, it will not. And these are expected 4% GDP decline in 2022 in Russia. While it’s painful, but frankly, for the country which had average GDP during the last 11 years at about zero, it’s not something completely new. Russian economy was already in stagnation for quite a long time during COVID, and 2020 of the GDP decline was also about 4 to 5%. So is comparable pain but it’s been. We see already approximately 20% reduction in the oil and gas revenues during this year. Both of the prices went down and the volumes went down, first of all, driven by the gas flows reduction. So they the sanctions are working and I would expect that the introduction of a price cap, the oil embargo, it will also tighten this situation. So probably in next year it will be another ten, 15% reduction in the oil and gas revenues. Yes, it doesn’t stop all the aggression. It doesn’t stop financing of the war, most likely because these expenditures, they are prioritized. Forget about schools and health care. All the money will go to the frontline. But still, it is undermining Russia’s capacity to invest in the upstream to acquire new technologies. By the way, most of them are now sanctioned to develop new upstream and midstream projects and to develop any green energy, you know, the energy of the future, which means that in ten or 15 years, Russia will not be neither the energy superpower for the fossil fuels as it was pretending to be, nor the major player of the energy transition world. And it is really extremely important for the longer term geopolitical positioning of the country.
Jason Bordoff [00:53:11] Can I ask you any come back to that point, I said I would come back to about enforcement evasion. Ship to ship transfers turning off your transponder. You know, the the oil trading world has a long history of figuring out how to get around things. It’s hard to track barrels of crude around the world. There’s lots of shipping companies and trading companies we’ve never heard of. There are probably more being set up right now to respond to this policy. How is that possible?
Edward Fishman [00:53:37] I think you’re exactly right. This is, you know, sanctions, by and large, are always challenging to enforce. And I think especially when it comes to the global oil trade. Right. Financial sanctions in some ways are the easiest because banks just run their transactions through the OFAC analysts and they use sort of opaque law or U.S. law, rather, to sort of screen all of their transactions. With oil, it’s always been more challenging. These are physical commodities that are traded at sea. We’ve gotten better, I think a lot better, honestly, in the last decade at understanding how these things work, a lot of which I think was driven by the Iran sanctions. I think the U.S. and other countries really built up substantial capabilities in understanding how oil moved around the world, things like ship to ship transfers, different evasion tactics. Do I think that this will make a difference in terms of the price cap potentially right on the margins? Do I think it will, you know, significantly undermine the price cap? Only if there’s a clear signal from the West that there is no penalty for doing that kind of behavior if there are penalties, for instance, designations. So if you’re currently if you were, you know, committing fraud or doing, you know, something to basically lie to a, you know, the British nightclub and say that, you know, this price, this oil was actually sold below the cap and in reality was sold above the cap. That is something that would be sort of compelling a Western company to commit sanctions, to violate sanctions, and as a result could lead to a designation. It could lead to whoever was doing that being cut off from the U.S. and European financial system. If we see those types of penalties enforced, You know, I don’t see how, you know, the kind of dark, you know, trade in Russian oil could actually make a significant impact on on the policy. So I think a lot of it does come down to enforcement. I think the bet that the United States has made out of the gate is that the bigger concern is actually over compliance. The bigger concern is that, you know, there will be all kinds of areas in the supply chain where Russian oil just doesn’t move, even if it is sold below the price cap. We’ve already seen some evidence of that with a bunch of tankers that are ostensibly transporting Kazakh oil gummed up in the Turkish straits because they can’t prove that they have they have insurance. So those are the types of things that the U.S. has been afraid of that, you know, we would unintentionally take significant barrels of Russian crude off the global marketplace. And so as a result, they’ve leaned into saying that enforcement will be relatively modest. That said, over time, if these types of evasion schemes did kind of build up to some level of scale, I strongly suspect that you would see the dial turned in the other direction. And by the way, that is the normal sanctions. You know, sanctions are not a perfect sign. There’s no purity in sanctions. There’s always some level of evasion. They’re not perfectly enforced. But ultimately, if you zoom out, what is the goal? The goal is to reduce Russia’s oil revenue, reduce, you know, damage Russia’s economy, regardless of how that’s done, whether or not some oil traders are making money on, you know, illegally shipped Russian oil. It doesn’t really matter all that much in the grand scheme of things.
Jason Bordoff [00:57:01] We’ve talked about one piece of this, and I want to ask both of you if you have thoughts about the next piece of it, which is we’ve talked about the ban that went into effect December 5th. You’re importing Russian crude in February. Europe will stop importing Russian refined petroleum products. And many people looking at oil markets think that will be even more disruptive because it’s harder to find alternatives both for buyer and seller. In that case, I’m wondering how you implement a policy like a price cap on refined petroleum products where a refiner buys crude and makes a lot of different things out of it, gasoline and diesel and jet fuel, they blend different types of crude before they put it into the refinery. Can we have a price cap on refined products and how would that work?
Tatiana Mitrova [00:57:46] While frankly, I do not know exactly what it is that the idea right now. And as we saw with the crude price cap. The discussion was ongoing until the very last day. So we can see some new ideas and new approaches. But what I can say that definitely it will be much more difficult to monitor, to track and to implement and to enforce. Yeah, exactly. Due to the huge variety of the oil products, but also due to the fact that Europe is much more dependent on Russian diesel than on the Russian crude. Just the percentage and as I’ve mentioned, it will be made a winter, it will be made heating season when actually any minor disruption, which would be okay in summertime, but this year it will be felt very strongly. And so rebuilding those logistical chains, finding replacement for diesel, for fuel oil supplies from the Middle East, from the Latin America, from the U.S., it takes time. There will be definitely is some issues. And the costs for European consumers could be at a theoretically, it could be a rather high. So maybe here we will see again the very, you know, mild and cautious option or with the introduction of for all the high price cap level and then slowly increasing the pressure. Eddie, what do you think?
Edward Fishman [00:59:27] Yeah, I totally endorse what Tatiana said. I think that the refined product caps will be significantly harder than the crude oil caps. I think probably if you could have a blank slate and go back to before the six sanctions package, you may want to reconsider this one, especially given how tight diesel markets are. I think the other the other thing is that, you know, my best sources have told me that, you know, they’re just significantly fewer ships available for refined product. So I think, you know, to the extent that, you know, ships aren’t you know, G7 services aren’t really being provided for these refined products, it’ll be very challenging to move that product around the globe. I had a senior U.S. official tell me the other day that the crude cap is just a beta test for the refined product cap. So I anticipate this will be something we’ll be tracking closely. And I also agree with Tatiana that my guess is this will come down to the wire to February 5th in order for us to actually figure out what goes into it. The thing we do know, though, one thing clear, because there is one thing we know I should put out there is that there will be two refined product caps, one for high value refined products, one for low value. Obviously, that could change, but that is something that has been stated by policymakers.
Jason Bordoff [01:00:43] We’re out of time. But I just quickly want to ask one last question, Tatiana, because you also are close watcher of other oil producers like Saudi and OPEC. And I’m wondering if, you know, there’s some speculation out there that nobody likes the idea of a I’m going to call it biased cartel, although Eddy corrected that by calling it a service providers cartel. You know, and maybe part of the reason why why why OPEC was thinking about cutting production was to send a signal that they didn’t like this price cap idea. What impact does this have on other oil producers on OPEC decision making? Maybe none or Russia’s important role in OPEC now as part of the leadership with Saudi with the Opec+ coalition?
Tatiana Mitrova [01:01:24] So, you know, Jason, surprisingly during the last eight or nine months, actually, Russia is improving its relationship with OPIC. Remember April and March 2021? They are what they were nearly. They’re breaking up all the ties now. It’s quite different. And indeed, it seems that OPEC’s members are not absolutely happy with the price cap idea, because while they can imagine the situation that this mechanism can be applied to their supplies, so the decisions they are making on the quotas, yeah, they are very clearly like silently supporting Russia’s position. And this is also an important message because, look, when we are discussing we were talking about price cap, how it will influence Europe, how it will influence Russia. But probably the most interesting question is how it will interest the global market. Yeah, it definitely will require redirection of the global flows. Russian oil goes to Asia, of Middle Eastern oil goes to Europe. What happens with the U.S. oil? So so it is some major market transition and it will be fixed and legally as it is says. Yeah. So this fixation of the new regionalization of the oil markets and then don’t forget, there is another process ongoing simultaneously with many countries switching to national currencies in their payments. Again, some financial regionalization. So there is something you evolving. We do not know how the end game will look like, but it is definitely the period which will be marked in the books as a new stage of the global oil market development.
Jason Bordoff [01:03:24] Eddie Fishman. Tatiana Trevor I always feel lucky when complicated things are happening in the world to be able to call friends to help me understand them much better, and proud that those friends are also colleagues here at the Center on Global Energy Policy. So thanks. It’s been a really fascinating hour. I learned a lot and I hope everyone listening did as well. Thanks for all the work you’re doing here at Columbia every day and for sharing your expertise with us.
Edward Fishman [01:03:48] My pleasure, Jason. Great to be here.
Tatiana Mitrova [01:03:49] Thank you, Jason.
Jason Bordoff [01:03:56] Thanks again, Eddie and Tatiana. Thanks to all of you for listening to this episode of Colombia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Erin Hartig, Stephen Lacey and Cecily Mazer Martinez from Post Script Media. Additional support from Anne-Sophie Corbo, Abby Rajendran, Daniel Prop, Natalie Volk and Kyu Lee Greg Veal. Frank engineered the show. For more information about the podcast or the Center on Global Energy Policy, visit us online at Energy Policy dot Columbia dot edu or follow us on social media at Columbia View Energy. And please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week.
Sixty dollars. That’s the per-barrel price cap G7 countries and Australia imposed on Russian crude oil last week. The measure will allow Western service providers to ship and insure Russian oil, as long as it’s sold at a price below the cap. The purpose is to reduce Russia’s petro-revenue, which funds its war on Ukraine, while still keeping its oil flowing to the global market.
This measure breaks new ground as a tool of economic statecraft. Analysts around the world are anxiously watching to see how the oil market – and the Russians – might respond.
Will the price cap achieve its objective? And what does this mean for the future of energy policy?
This week host Jason Bordoff talks with Eddie Fishman and Tatiana Mitrova.
Eddie is a senior research scholar at the Center on Global Energy Policy (CGEP) at Columbia University and an adjunct professor of international and public affairs. He previously led the U.S. State Department’s design and implementation of sanctions on Russia. You can find two explainers he wrote about the price cap on Russian oil on CGEP’s website.
Tatiana is senior research fellow at CGEP and one of the world’s foremost experts on the Russian energy sector. She has served as executive director of the Energy Centre of the Moscow School of Management and as head of research in the Oil and Gas Department in the Energy Research Institute of the Russian Academy of Sciences.
Eddie, Tatiana, and Jason talk about what the price cap could look like in practice, and how Russia might respond. They also discuss the impact of sanctions already in place.
Around the world, activists are turning to the courts to hold major polluters accountable for climate change.
As the world races to transition to cleaner energy sources, there exists a substantial gap between the financing required for this transition and the actual investments being made.
Today, Qatar is among the world’s wealthiest countries. Its rich hydrocarbon resources have transformed this small Gulf state into an energy powerhouse, funded its outsized global ambitions, and allowed it to forge an identity separate from those of its large and powerful neighbors.Purchase Book
Earlier this month, OPEC+ leaders Saudi Arabia and Russia announced further voluntary production and export cuts, with the former alone accounting for nearly half of the OPEC+ aggregate.