Oil Market Interventions

This transcript is from a CSIS podcast published on May 13, 2024. Listen to the podcast here.

Adi Imsirovic: All the increases in demand are coming from at the moment. Non-op countries and the Americas. Russia is very happy with the current arrangement. They're basically competing on price, so they're happy. They go to India, they go to China. They're desperate for money because they're waging an expensive war. So they'll do anything just to sell the product. And for Russia, it's like printing money. Marginal cost is virtually zero, so they're just selling it at whatever market will bear or pay. And India is benefiting China's benefiting and that is eroding OPEC share in India and China.

Ben Cahill: Welcome to Energy 360. I'm Ben Cahill, senior fellow in the Energy Security and Climate Change program at CSIS. This week I talk with Adi Imsirovic of Surrey Clean Energy about the state of oil markets. Adi is one of our program affiliates at CSIS and long-term oil market analyst. He was a trader for 35 years, including a role as head of oil trading at Gas Pro marketing and trading in the UK. He's authored or edited several books including one last year entitled Brent Crude Oil Genesis and Development of the World's Most Important Oil Benchmark. Adi and I discussed near-term issues including the state of global demand and refinery economics in Asia and Europe. We also talk about the growing trend of government interventions in the oil market, in the form of embargoes sanctions and price caps. It's a wide ranging conversation with a top expert who always brings a fresh perspective to market issues. I hope you enjoy it. Adi, CSIS program affiliate, it's really good to have you in town. Welcome to DC and welcome to CSIS.

Adi Imsirovic: Thank you, Ben. It's wonderful to be here.

Ben Cahill: So we've been chatting about oil markets and we've collaborated on a couple pieces, but it's great to have you here in the building. And we thought we would take this opportunity to just have a chat about what's going on in the oil market, some immediate issues, some longer term issues that you and I have been discussing, and just have a chat and see where it goes. Sound good?

Adi Imsirovic: Absolutely, yes. We can just continue our conversation from this morning, I guess.

Ben Cahill: Yeah, so let's take the temperature of the market. I mean, if we think back to about a month ago, there were various fireworks and missile strikes and events happening in the Gulf and Brent was around $90 a barrel. It seemed like it was on a march upward. There's clearly a lot of concern about geopolitical risk coming back into the market today. I saw Brent is around 82 bucks a barrel. The mood seems to have shifted pretty quickly. What do you make of all this?

Adi Imsirovic: It's quite interesting because the market is at a fairly critical juncture. I think Q2 is normally sort of a weak apart, seasonally weaker, weaker part of the year for the oil market. But with Q3, and we already in Q3 because we already trading whatever August barrels, there should be a pickup in demand. We're going to gasoline sea and so on and so forth. And it's a little bit surprising at the moment that the market is rather weak and it's a little bit surprising that it's this week and I haven't been particularly bullish on the market, but at the same time I'm a little bit surprised that we're not at 19 plus dollars per barrel. And there are several reasons looking back. First of all, refinery margins don't seem to be that great. Even though we see China coming back, the PMMI are not as bad as some feared used.

Demand is quite good. Generally gasoline has been extremely weak. And I was just reading some stuff yesterday about, I think it was in Reuters about gasoline demand in China and it's actually not going anywhere. The expectation is probably of gasoline demand growth of a hundred thousand barrels a day. It's a margin of error in statistics. At the same time, I think we've seen in the U.S. gasoline demand peaked in Europe, demand is very, very weak as a result. The knock on effect is what I see in the market is that I always look at the West African barrels first because they're kind of bellwether of what's happening because they tend to be sold on spot bases. So they're actually struggling to move. And I think NPC, which is a Nigerian national oil company, they probably overdid their sort of OSPs official selling prices. And I think a lot of sellers were holding back trying not to lose money.

But at the moment they're not looking that great. A lot of unsold barrels, the fact that we had turnarounds in Europe and the refinery system hasn't helped because Nigerian barrels like to go there. And also Nigerian barrels are being squeezed out of India quite a bit because of the Russian barrels going in there. And if you look at the brand structure spreads from spread only about three plus weeks ago was about a dollar. Now it's half of that CFDs this morning, which is basically the structure of the dated Brent curve is in contango, funnily enough, and it's negative.

Ben Cahill: For a more general audience, can you just take a minute and talk about the time structure and define continue what it means?

Adi Imsirovic: Sure, absolutely. Sorry about that. So basically, Brent dated and Brent in general is the key international oil benchmark. Dated Brent is the price of spot or physical, real physical Brent. And that structure also trades in terms of swaps on weekly basis for usually about two plus months forward. So that structure is really good indicator of the real physical demand. So when dated Brent is trading at negative levels to forward market, we're talking about contango. So that structure of those swaps has been negative. I looked at it this morning and also what we call weekly roles from now, let's say this week into next week in the following week, that's all been in contango for at least three or four weeks. So that's an indication that physical, real physical market is not looking that great and actually just supports my argument about the West African barrels also not looking that great either. At the same time, funnily enough, you've got Saudi's increasing their official selling prices.

Ben Cahill: Yeah, I saw that. So let's return to China for a minute. I think you mentioned that gasoline and diesel demand is looking fairly weak. It seems like a mixed picture in the last six to nine months, right? Jet fuel demand was okay. Gasoline and diesel demand seemed actually fairly strong, but the knock on effect of slower economic growth mostly seemed to be on that kind of demand for construction and industrial materials. And of course there's been this huge overbuild of petrochemicals downstream refining capacity in China. So talk about that for a minute. What are you seeing in terms of Chinese demand?

Adi Imsirovic: That's really interesting. Well, I mentioned about gasoline. Chinese statistics are not that brilliant. So people usually kind of work out implied demand and what's going on right now, we'll probably only find out in a couple of months time, but if you look at globally actually distillate demand or better folks on diesel, diesel demands actually really, really weak. And we saw, I think a couple of days ago China announced they obviously do quarterly quotas for their product exports because it's all refinery margins are decided by the government. So that's quite a bit of gas will be coming out there and in this weeks market it's not going to be the particularly good news. And that coincides at the same time with, you must have seen the news this morning or was it last night? Now I'm confused because of time lag between Europe. I'm slightly jet lagged. Shell is selling their refinery in Singapore.

Ben Cahill: I did see that. That seems like a landmark event.

Adi Imsirovic: It's all actually surprising when you look at this because I mentioned this morning what's happening is that because China, as you rightly said, has this excess refining capacity. So essentially China, by issuing these quotas and fixing the amount of product that is being thrown into the market outside China determines it's a bellwether of refinery margins globally, but especially in Asia. So if you're Shell, you're a commercial entity, you're the mercy of the Chinese government. So it's not a very nice position to be in strategically or commercially.

Ben Cahill: Plus you have carbon prices in Singapore which may do something to your refinery margins. True. But that was a big event. I mean that was a long established position for Shell, the largest and oldest refinery positions in Asia.

Adi Imsirovic: For Asia it's the biggest. It's about half a million barrels a day. It's a good refinery.

Ben Cahill: Definitely an interesting, that point about refinery margins I think is really critical. And Chinese export quotas really dictating refinery margins throughout Asia.

Adi Imsirovic: Absolutely. And actually knock on effect will be that they dictate the margins elsewhere in the world as well. I think U.S. is probably the only place that could be relatively immune simply because you've got refinery next to the feedstock. Refineries are getting cheap feedstock, so they'll be fine. European refineries are in, can see it, their closures announced every day. And I think most of the European refiners, what they're doing is they're now focusing on probably shifting their refinery into biofuels because that's where the money is probably going to be. And we'll discuss this tomorrow in the forum of course. But the problem at the same time is you're not sure whether you've got enough feedstock for the biofuels. So yes, you can ship your refinery into biofuel productions, but then you have to make sure that you've got adequate supplies. And of course Europe quite rightly is being very strict about it.

There's no point turning into biofuels if you're going to run palm oil as a feedstock because damage to the environment is absolutely obvious to everyone still with palm oil, destruction of rainforest and so on. So yes, Europe is being a leader here in those terms of energy transition, but European refineries are going to be in a very difficult position. And the next thing will be, I think we'll discuss Laura as well, sort of CBAM what Europe's going to do about carbon in the energy industry. If are they going to include refining in there because they can include it, but they then can ground them some free allowances, but at the same time that in the past has proved not to be the right way of doing things, right if you're really being truly sustainable. So I think they eventually will see refining part of it, but we'll see sea ban protecting European refineries from the foreign competition.

Ben Cahill: Yeah. Let's take a minute and talk about the demand side in a bit more detail. I mean, I think the story of the market in the past year has been that old demand has been pretty strong globally, extremely strong demand in 2023 led by China, of course something like 60 to 70% of global demand growth was in China. So-called revenge travel, a lot of people flying and moving around pretty rosy picture this year it seemed like a lot of banks, commodities research firms expected around 1.5 million barrels a day of demand growth give or take a couple hundred thousand barrels. Of course OPEC numbers are much, much bigger if you look at the secretariat data. But the story to me has been that the supply side has kept pace. And so even though you had the strong demand picture, you had extremely strong non OPEC supply from the United States, some from Guyana, some from Canada, from Brazil and other places. And even though we have the slowdown in the United States happening, we're not having this kind of robust year on year supply growth. It still looks like a relatively well supplied market. And so we never seem to reach this point where the supply constraints kick in. I mean, what do you think about how that looks heading into the second half of this year?

Adi Imsirovic: Well, it's something that's worth discussing is more of a conversation piece. My view has always been that from the supply point of view, the Americas will meet pretty much any demand. Now, demand is always the harder side to estimate rather than supply. So let me address that first. What I think with the demand side of things is that the way the demand has been developing is a little bit odd because we've never been here, Ben, and we haven't been here because we have never had this pandemic. So we've had a pandemic where demand fell by eight odd million barrels very, very quickly. And then after that recovery came, and then as you rightly mentioned, 22, particularly 23 was the year when there was that revenge travel and everything. But because we haven't been here before, it's very hard then to say, well, will it continue or is it going to stabilize?

It's some sort of pre covid levels, all the evidence at the moment, and I look at the International Energy Agency and Department of Energy in the U.S., they're kind of more aligned with what seems to be happening. The odd one out is OPEC Secretariat where they're sort of projections, it seems to me are coming really from top down, more like Joe boning the prices than the real serious forecast. Yeah, it's a big number. It's definitely, it's a huge number. Absolutely, yes. And actually if you look at the demand in China, it's not really, China was the big one, deciding where demand was going. When demand is not coming from China, where is demand going to come from OECD region if anything is going to fall. And now those who are super bullish, more and more talk about India, but India, I tend to say India is a minnow in terms of oil demand.

And I don't mean it in any sort of negative sense towards India, the economy is doing extremely well, but when you talk about three and a half million barrels of oil imports, you have a big issue that, well, okay, if the economy grows currently, let's say 5% suddenly grows 10% and demand grows by 10% rather than 5% for whatever reason, well that's what we're talking about. What couple of hundred thousand barrels extra, it's not going to solve the problem. You need China that will suddenly come up with an extra million or million and a half to really make the difference at the same time, as you're rightly mentioned. Now let's go to the supply side. The Americas Guyana, the U.S. being the obvious one, everyone is saying, oh us is shave, is slowing, slowing, slowing? Well, of course it's slowing. We were talking about exponential growth and when it's exponential, it's very hard to keep that exponential momentum.

Of course, it'll have to take a breather somewhere, but it's going from strength to strength. And you know what my thinking, and this is something I'd like to hear what you think, but in terms of energy transition, shale, and I wrote this in my book that should be out in September and I wrote in my first book in 2021 on oil and trading, price discovery and oil trading. The idea about shale is absolutely brilliant for energy transition. You don't have to put multi-billion dollar project in place and then hope that in 10, 15 years demand will be there. Which many OPEC countries, that's the way they look at it, which shale, you basically put a lot smaller amount of money for a year and if you do invest a lot more, you can at least spread it in different place. So we actually hedge pretty nicely there talking about hedging one year forward, you can actually hedge the price as well, which is wonderful. And then after a year, you can just call it a day if there's no demand and you lock in all your profits. So shale plays absolutely perfect for this uncertain energy transition, and I just see more and more people looking that way rather than into big offshore project unless they're in proven areas where there's a very high chance of hitting the oil in the ground.

What do you think?

Ben Cahill: Definitely, I mean that's the unique aspect that short cycle oil brought to the market and it's primarily a U.S. shale story, but there's some parallels I think with oil projects elsewhere. I mean, what companies have been funding is mostly short cycle projects. So it may not be shale with that kind of rapid cycle of development, but it's tieback projects, it's close in field developments, stuff that's less complex, easier to bring online uses. Existing infrastructure doesn't require that five to seven year production cycle. And as you said, I think with a few rare exceptions, the economics of deep water are more challenging. And for specialist companies that did expiration for those frontier spots and tended to discover and prove up those resources, that's just a tough business now. So definitely the majors and I think the industry in general has been moving away from that stuff.

Adi Imsirovic: It's a crying shame that we kind of haven't resolved issues with shale in Europe, and that's primarily legal. Most people say in Europe, well we sort of very environmental. We have legal issues in Europe that if I find oil in my garden, it belongs to the state, not to me. And that's a big difference why in the U.S. shale is celebrated and people are quite friendly towards shale, whereas in Europe we're not because there's no upside for the individuals other than the state, but you'll see more shale. I think a lot of people are working on shale, not necessarily it's in public knowledge, but in China, Chinese production as well as picked up. You've got Argentina, and I wouldn't be surprised in some OPEC countries as well, even in the Middle East, wherever there's some shale, it's wonderful simple way of actually producing oil and not taking big risks, as you said.

Ben Cahill: Yeah, certainly with ADNOC and Saudi Aramco, they've been looking at unconventional gas developments and spending a lot more time in building up teams to do that kind of research development.

Adi Imsirovic: And gas is the thing now in the Middle East as well. I mean Saudis are, they've seen what Qatar is doing and talking of which, this is an interesting one. What do you think about this? My thinking is that you see Qatar is now investing a lot and people are saying there’s going to be a lot of LNG in the next five years. Why is Qatar doing it? Well, maybe they have the right strategy towards gas and maybe the Saudis actually have a wrong strategy regarding oil. Having said that, the research I did for my latest book, I mean Saudis and UAE, are actually doing a pretty good job trying to get the economy away from oil. They've been doing a lot of investments and it's public knowledge sort of buying golfers and footballers and so on and investing money into service industry. I really worry about small OPEC countries and what's going to happen to them in the next five, 10 years when they have no sovereign wealth funds. They have large budget deficit and if oil prices fall, it'll eventually fall because of falling demand. It'll be basically musical chairs, whoever is left out there. And I think some countries like Algeria, I don't know, Libya and so on that have high production costs, not much money in the bank will suffer greatly, which is worrying.

Ben Cahill: Yeah, I mean I think the UAE is probably a good example in this regard. They clearly made a decision back around the mid 2000 tens. It was really visible starting in 2016 with some governance changes that they wanted to move to more of a produce now mentality and bring forward that development of oil resources. So what they tried to do was break up existing onshore and offshore concessions, bring in a whole bunch of new partners, unlock value from all those resources, but especially develop things faster. They set a new oil production target, they wanted to reach 5 million barrels a day. The pathway to do that definitely by 2027, which is the target. They say they're at 4.05 now.

Adi Imsirovic: I think probably before that, given the way they're buying.

Ben Cahill: Yeah, absolutely. And they've essentially licensed all the acreage, both onshore and offshore gas cap developments, unconventional gas bringing in a bunch of companies like Oxy and Apex to do expiration. So it is a mentality shift. I think the UAE is probably a little bit farther along in that regard than some of the others, but it does point to a challenge that a lot of the old producing states have, which is the old mentality was this is a hundred year development cycle. We have to conserve these resources for future generations, be very disciplined and modest in the way we developed 'em. And now with all the questions about long-term oil demand, that equation has changed. And some countries have decided, look, we have to do this stuff sooner because post 2040, certainly the demand picture is a little bit more murky.

Adi Imsirovic: And that all leaves that subject that we've been mentioned this morning outside the podcast we were chatting about OPEC market share, which is shrinking. All the increases in demand are coming from at the moment, non-OPEC countries and the Americas. Russia is very happy with the current arrangement. They're basically competing on price. So they're happy. They go to India, they go to China, they're desperate for money because they're waging an expensive war. So they'll do anything just to sell the product. And for Russia, it's like printing money. Marginal cost is virtually zero. So they're just selling it at whatever market will bear or pay. And India is benefiting, China is benefiting, and that is eroding OPEC share in India and China, we saw last week for the Saudi budget deficit, can't remember, it was just over 3 billion. It's not massive, but it's a deficit. The calculations I saw, I think it was IMF, was that Saudis need now $95 a barrel to cover their budget deficit. And this is the complex situation where Saudi Arabia is carrying the burden of all the cuts and because they're the most disciplined member, they're cutting, they're the swing producer, but it's not being reflected in the price. So now you've got double whammy of low production and low price. So low production times low price, relatively low price is low revenues.

Ben Cahill: I think after the latest scheduled OPEC cuts in the voluntary cuts by Saudi Arabia and other producers, they're somewhere around 9 million barrels a day now.

Adi Imsirovic: And how, the question is how long can this last? I mean, how long can Saudi Arabia, unless the only thing, I've said it many times, the only way that OPEC can, particularly Saudi Arabia can resolve the situation is through higher demand. But what if that doesn't happen? And it shouldn't happen for something that we are going to discuss tomorrow, simply because in order to meet our climate change goals, we really need to have less fossil fuels. Maybe IEA is wrong, one or two or maybe five years out, but eventually we really need to reduce fossil fuels and it's all happening very, very soon. I mean, 23rd is just around the corner.

Ben Cahill: Yeah, I mean the one caveat I would add for Saudi Arabia though is that they can run budget deficits for some time. They've got hundreds of billions of dollars in foreign exchange reserves. They can access credit from friendly local banks. International debt is quite low, so running deficits for some time is no problem. The challenge I think, is that during the middle of an economic transformation program, and a lot of that requires a burst of investment from the state. This is why we've seen that the public investment fund or the PIF plays such a critical role in that economic diversification and that needs investment if you're going to build investments in financial services, medical tourism and entertainment and all these things that the kingdom wants to do. It was a pretty large role for the state. So it does suggest that higher oil prices are appreciated and maybe needed.

Adi Imsirovic: Absolutely, and I do think that, it seems to me it's not something that Aramco and Saudi minister said, but I think they want to squeeze the lemon as much as they can get the high prices for as long as they can, as high as possible so they can have these investments, which they are well into in terms of transforming their economy. And it's all in with the ultimate goal of transforming their economy.

Ben Cahill: Definitely if OPEC it smaller and declining producers, and those are the ones who I think will really be struggling in the future. The West African producers, some of the smaller Middle East producers, because they're just not seeing the kind of sustained investment. Some of them are losing equity partners and they have budgets and political systems that have kind of depended on high oil prices for many years.

Adi Imsirovic: And they have policies that make no sense most of the time. If you look at what's happening with Nigeria with new Dangote refinery, it's quite interesting.

Ben Cahill: It’s the Dangote refinery.

Adi Imsirovic: Yeah, It's quite interesting because they bought, I think as far as I know so far, four cargo of WTI Midland to run, and the product is not going to Nigeria. Even though the politicians locally wanted to go there, they're exporting it because obviously they don't want to subsidize the government and everyone else that's a commercial operation. So until these issues get sold, and these issues are of government policy, really something that I've been looking into quite a lot recently because of my work on energy transition, because there's usually, and I know, but this is just a chat, so I'm kind of taking slightly away with discussion on energy transition because there's a lot of money on Wall Street looking for investments. At the same time, there's a lot of talk, oh, well, who's going to help developing countries transition? Well, there is money there. So the next question is, why is the money not going to third world countries or developing nations where actually demand is booming and it would make so much sense for private capital to go that way. Well, the reason our policies, you don't want to put your money into renewable energy, let's say in Nigeria when you know that fossil fuels are being subsidized. The same situation is in South Africa and in Indonesia, these really big booming markets. They have to get their policies, and once they get their policies right, the money will come. There's no point forcing the money in getting the UN money or World Bank money. I mean, it's coming anyway to an extent, but they need to sort out their policies and the money will come automatically.

Ben Cahill: This issue of access to capital and interest rates and the variation across countries is a big obstacle for the transition. I want to turn to a topic that I know you and I have both been thinking about a lot. It's one of the reasons why you're here joining us this week. I think a mega trend in oil market is that we've seen more interventions by governments over the last decade, but especially in the last couple of years in the form of energy sanctions, embargoes by the European Union against Russian seaborne, crude oil and petroleum products, price caps, all kinds of measures that they've got various economic and political goals. But I think the net result is that there's some distortions that have been introduced in the market, and the trajectory seems to be an oil market that is not just driven by economics and refinery configurations and globalized to oil flows, but will increasingly be subject to these kinds of distortions and interventions. I wonder where you see this going and what we've learned from the last couple of years with, for example, energy sanctions on Venezuela and Iran and now Russia.

Adi Imsirovic: Well, it's a huge, a big question. Yeah. Well, I mean briefly over the top of my head. First of all, you have two type of interventions. Well, let me just say kind of executive summary. I think we're going to see a lot more government intervention, and now I'll come back to why you have two types of interventions. You have interventions, which I think are perfectly okay, which is to do with energy transition because until we have the rule or that polluter pays, we're not going to have energy transition going anywhere. And that's not the case at the moment. We still have over trillion dollars according to the IMF of energy subsidies for fossil fuels. And that's number one thing that governments have to do. They'll have to get rid of these subsidies. And it's okay to help people population hope with high energy prices, but should be done in a targeted way directly through cash transfers.

And in that way, the poorer people can actually get even more money than they're getting through subsidies. I often say that by subsidizing fossil fuel, you're primarily subsidizing the rich, the wealthiest, because they're the biggest pay head energy consumers anyway. So that's number one. But number two, negative effects of the government intervention have been, and it seems to me that we never learned from history looking at the United States in 1970s and price freezes these interventions. What worries me actually could one day end up in shortages. And that's one thing we don't want to see. So if you remember with the energy crisis in Europe, there was a lot of pressure to basically put a cap on TTF, which is the gas hub in Europe. It's not liquid, liquid. It's basically a benchmark for gas prices in Europe. And that's disastrous. I mean, once you put a cap on price, number one, there's less incentive for producers to produce more.

And number two, people will not cut waste or wasteful demand. So you'll always have more demand than supply and you'll probably eventually end up shortages. Fortunately, that CAP and TTF ended up way over and above the market anyway, and market quite down. So didn't become important situation with price caps and Russian oil, something we wrote about together. Again, I mean that intervention was actually, in a way, I don't know, depending whose point of view you're taking, but it was just done to make the oil flow already. The sanctions by Europe were in place that were actually hurting Russia and would've resulted in less Russian exports with price caps. Basically, the Russian exports were allowed to flow. So even now, going back now to Venezuela and Iran with the elections in the United States, does Biden administration really want to see the end of Iranian exports? Probably not at high gasoline prices, probably not the same applies to Venezuela and Russia. So there's a lot of intervention, but that it creates a lot of distortions in the market. And it's kind of interesting that I think it's quite undisputable that these sort of disrupted flows of oil and partly gas. We'll see with LNG, I think Europe is going to pass the new law regarding Russian LNG as well, which will be interesting to see. It basically creates less transparency. It creates more volatility, and what it does is it increases the role of intermediaries.

Ben Cahill: Yeah, definitely.

Adi Imsirovic: So if you see what was been happening, for example, Venezuela and oil is not supposed to be going to India because reliance didn't have a waiver from the U.S. government, and they've applied for a new one again, but oil was going there anyway through intermediaries. If you look at Iranian oil, going to China, going through intermediaries, shipped to ship transfers, Malaysian oil basically, and same thing happening with Russia. Intermediaries are involved. You take Russian oil into, I don't know, let's say Turkey, it gets refined or not, sometimes not even refined in case of product gets relabeled, comes back to Europe anyway, a lot of new players, a lot of intermediaries. So the whole market is a little bit kind of gone under the radar.

Ben Cahill: And traders love volatility and they love discontinuities. That's where they're in the markets.

Adi Imsirovic: Exactly. And volatility has been fantastic, and I don't want to talk about why they like volatility, because I think that's one point. It's often, often misunderstood. It's not just sheer volatility of trades. I think trading is all about setting up a trading book with optionalities, and once you have a book, good book with a lot of optionalities, volatilities, then perfect to actually execute it makes those optionalities worth a lot more. And that's all proofs in the pudding we've seen last two years, the P and L or profits of all the trading companies have been phenomenal.

Ben Cahill: Yeah, I saw a chart of profits for some of the largest commodity trading houses in the last two years, and it's just skyrocketed.

Adi Imsirovic: Yeah, I know I know makes me sometimes a little bit sad that I sort of left trading two years ago, three years ago.

Ben Cahill: Anyway. Well, it's definitely true that when this trade goes dark, you have good actors and some bad actors that take advantage. And I think the net result of certainly the sanctions on Iran and now Russia, is that a lot of intermediaries have popped up. A lot of tankers have changed. The ownership is opaque. It's easy for licenses and ownership to change hands. They flags between different countries. Payment systems have gone dark. And this is a challenge, right, because number one, if your goal is to suppress the revenue of these states, it doesn't always work. Number two, you create a lot of incentives for various people in the market to get around these measures.

Adi Imsirovic: And usually some very unpotable characters.

Ben Cahill: Absolutely, and I think from a public policy standpoint, there is a risk. Each of these individual measures as well, intention and has a good and justifiable goal, but you create incentives for actors to cooperate and skirt the U.S. financial system, avoid exposure to U.S. banks, maybe even start to experiment with non-dollar commodity traits. I mean, all this is going to take some time to develop, but you can see that a larger share of oil trade, including from some big exporting countries, is now kind of moving into dark corners of the market. And I think that's the problem on multiple levels.

Adi Imsirovic: Of course. I mean, you dunno where that money's going, where before you could see when, let's say RO or gastro or exporting oil, that would be some sort of P and L still publicly available that you could see. Now when you've got these characters that most of us have never heard of, these new companies that even traders in the market never heard of. They are doing barter deals, they're doing non-dollar payments, they're using banks outside U.S. control or basically G seven, control that money, where's the money going? You never know. And it may well be going and funding people that we don't want to be funded. And from public policy point of view, you're absolutely right. I mean, are we really achieving much or are we actually causing more bad than good as a result?

Ben Cahill: Yeah, hopefully more good than that, hopefully.

Adi Imsirovic: Hopefully. Fingers crossed.

Ben Cahill: Well, Adi, there's no end of things to talk about, but we'll continue the conversations and future podcasts. It's really great to have you in DC and to have your expertise on the markets as an Ex-trader and someone who really knows the ins and outs of the market to have you as part of the group. So thanks so much for being with us today.

Adi Imsirovic: Thank you, Ben. It's great pleasure to be here and actually to meet everyone, I really look forward to the next two or three days.

Ben Cahill: Thanks to Adi for joining us this week. Check our program page for more of our work on oil markets. You can find more episodes of Energy 360 @csis.org or wherever you listen to podcasts. Follow us on LinkedIn or X for updates from our team. And as always, thanks for listening.

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