(BRUSSELS) The price of oil sold by Russia to the West will be cut by as much as $60 a barrel starting in the next few days, with the European Union, then the G7 and Australia finding a three-way deal on Friday. Dates when the European ban came into effect.
“The G7 and Australia […] “A consensus has been reached on a maximum price of USD 60 per barrel for crude oil of Russian origin transported by sea,” the countries announced in a joint statement.
US Treasury Secretary Janet Yellen welcomed the announcement in a statement, calling it “the culmination of months of effort by our coalition”.
The deal was made possible by consensus a day before the EU’s 27 countries succeeded in rallying Poland.
Finance ministers from the G7 countries agreed on the instrument in early September, which is designed to deprive Moscow of the means to finance its war in Ukraine.
Concretely, the price should be high enough to interest Russia in continuing to sell oil, but should be below the price that limits the revenue that can be derived from it.
The mechanism will come into force on Monday “or very soon”, refer to the G7 and Australia. In fact, the EU embargo on seaborne Russian oil begins on Monday.
Therefore, only oil sold by Russia at or below $60 will continue to be supplied. Beyond this ceiling, companies will be prohibited from providing services that allow sea transportation (freight, insurance, etc.).
Currently, the G7 countries provide insurance services for 90% of global cargo and the EU plays a major role in maritime cargo – providing a reliable barrier, but also risks losing markets to competitors.
Price adjustment
Russia, the world’s second-largest crude exporter, has warned it will no longer supply oil to countries that accept the limit.
Without this ceiling, it would be easier for him to find new buyers at the market price. The price of a barrel of Russian oil (crude from the Urals) is currently hovering around $65, just above the European ceiling, indicating limited impact in the short term.
“We will be prepared to review and adjust the maximum price if necessary”, the G7 and Australia promised in a press release. From February 5, 2023, the ceiling for Russian petroleum products should be identified.
The European ban comes months after the US and Canada have already decided. But Westerners have to deal with the interests of powerful British insurers or Greek shipowners.
“The EU remains united and stands in solidarity with Ukraine,” the Czech Presidency of the Council of the European Union welcomed in a tweet.
Russia has earned 67 billion euros from its oil sales to the EU since the start of the war in Ukraine, while its annual military budget is about 60 billion, recalls Phuc-Vinh Nguyen, an expert on energy issues at the Jacques-Delors Institute. .
Fears of instability
The instrument proposed by Brussels plans to set a limit of 5% below the market price if Russian oil falls below $60.
Indeed, some experts fear destabilization of the global market and wonder about the reaction of OPEC’s producing nations, which meet Sunday in Vienna.
“This limit will help stabilize global energy markets […] And will directly benefit emerging economies and developing countries”, as Russian oil can be supplied to them at prices below the ceiling, European Commission President Ursula van der Leyen assured on Twitter.
Starting Monday, the European Union’s embargo on Russian oil by sea will cut crude purchases from Russia by two-thirds. Germany and Poland have decided to cut off their oil pipelines by the end of the year, affecting more than 90% of total Russian imports, Europeans say.
On the other hand, “oil price ceiling is not seen yet. We are in the unknown,” warned Phuc-Vinh Nguyen, stressing that the reaction of OPEC countries or big buyers such as India and China will be most important.
The only certainty, according to him: A cap, even at a high price, would send “a strong political signal” to Russian President Vladimir Putin, because, once, the mechanism could be tightened.
