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The EU, G7 and Australia want to keep the price of Russian oil as low as possible. Whether that works remains to be seen.
The EU is putting pressure on. She herself imposed an oil embargo on Russia because of the Ukraine war. And now she wants to work with other Western countries to ensure that only certain prices are paid for Russian oil worldwide.
Price cap and embargo from Monday
The concept seems audacious at first: The EU and its partners like the G7 and Australia want to tell their opponent Russia the price at which it can sell its oil on the world market. The price cap is said to be $60 per barrel. The EU states agreed on Friday evening after a long back and forth.
Shortly thereafter, the seven leading democratic economic powers (G7) and Australia announced their participation. The price cap is to apply from Monday, at the same time as the start of the EU oil embargo against Russia.
A number of questions arise in connection with the oil price cap:
How does the price cap work? Western shipping companies will only be allowed to continue bringing Russian oil to India, China or other countries with their ships if the price cap of 60 dollars per barrel of Russian oil is adhered to. The same regulation should apply to services such as insurance, technical assistance, financing and brokerage services. The fact is: European shipowners operate more than half of all tankers in the world.
Legend:
European oil tankers are no longer allowed to transport Russian oil if it is trading above the price of the cap. Will that work?
Reuters/Jean-Paul Pelissier
What could the measure do? The hope is that the price ceiling will ease the tension on the energy markets and relieve third countries. It is also intended to ensure that Russia no longer benefits from rising oil prices and can thus fill its war chest. The losses for Russia should amount to 1.9 billion dollars per year.
How was the price limit set? Eastern EU countries like Poland and Estonia wanted the lowest possible limit in order to limit Russian revenue as much as possible. Others feared that Russia would shut down production if the price was set too low. The now agreed $60 per barrel is well below the current market price of around $69. The height of the lid is checked every two months.
Legend:
Reuters
The cap of $60 a barrel for Russian oil is not deep enough for Ukraine. It should be halved to $30, according to President Volodymyr Zelensky’s chief of staff. “This can destroy the enemy’s economy faster,” he wrote on Telegram. At the same time, Andriy Yermak welcomed the fact that agreement had been reached on a price cap for Russian oil.
Will the bill add up? That is unclear. Crude oil has become cheaper recently, not least because of the announced price cap. However, Moscow announced that it would not sell crude oil to countries that adhere to the price cap. If Moscow persists, it could lead to a shortage and thus to rising oil prices. It therefore depends very much on how China, India or Egypt, for example, who are currently buying a large part of Russian oil, behave.
What will Russia do? Moscow could take its oil exports off the market entirely, or impose a floor on its crude below which no oil can be exported. In addition, Russia may try to circumvent the price cap by concealing sea transport. Another possibility: Moscow is working in Opec+ to reduce global oil production. This would increase prices and exacerbate the global energy crisis.