Status: 03.12.2022 01:47 am
Russia continues to make billions in profits from oil exports. With a price cap of 60 dollars per barrel, the EU, the G7 countries and Australia now want to force Moscow to sell oil below the market price.
After the agreement of the European Union, the G7 countries and Australia also set a price limit of 60 dollars per barrel for Russian oil transported by sea. This should come into force on Monday “or very soon thereafter”, it said in a joint statement.
The price cap aims to reduce Russia’s oil revenue while preventing a rise in global oil prices after an EU embargo on Russian crude came into effect on December 5. The G7 had already initiated the upper price limit for Russian oil at the beginning of September, and it has now been decided following the corresponding EU agreement. In addition to Germany, the G7 also includes the USA, Canada, France, Great Britain, Italy and Japan.
The decision implements the promise made by the G7 heads of state and government at their summit at Schloss Elmau in Bavaria in June this year to “prevent Russia from profiting from its war of aggression against Ukraine,” it said. It was also intended to stabilize global energy markets and minimize negative effects on poorer countries, which suffered most from Kremlin chief Vladimir Putin’s war.
Russia’s revenue “significantly reduced”
After lengthy negotiations, the EU had previously agreed on a price cap of $60 per barrel sold to third countries. The EU wants to force Russia to sell oil below the market price to buyers in other countries in the future. The price of around EUR 57 per 159 liters would then be up to EUR 9 below the most recent market price for Russian Urals crude oil.
In order to enforce the price cap, it should be regulated that in future important services for Russian oil exports may only be provided with impunity if the price of the exported oil does not exceed the price cap. Western shipping companies could use their ships to continue transporting Russian oil to third countries such as India. The regulation should also apply to other important services such as insurance, technical assistance and financing and brokerage services.
EU Commission President Ursula von der Leyen said the price cap would “significantly reduce” Russia’s revenues. It will also help stabilize global energy prices, which will benefit emerging markets around the world.
Price cap to supplement oil embargo
In order to be able to react to market developments, the plans envisage reviewing the price cap every two months. It should always be at least five percent below an average price determined by the International Energy Agency (IEA). In addition to the EU, countries such as the USA, Great Britain, Canada, Japan and Australia are involved in the project. The price cap is intended to complement the oil embargo against Russia that the EU decided in June. Among other things, this provides for a ban on the purchase, import or forwarding of crude oil and certain petroleum products from Russia to the EU. The restrictions apply from December 5 for crude oil and from February 5, 2023 for other petroleum products. However, there are some exceptions, for example for Hungary.
difficult negotiations
Recently, however, the negotiations on the specific upper price limit turned out to be more difficult than expected. During the talks, Poland, initially with the support of the Baltic states, called for a price cap of under $30 per barrel to be set and thus to remain at the estimated production costs of $20 to $40 per barrel.
The government in Warsaw was supported by Ukraine. President Volodymyr Zelenskyj said last week that a price of up to $30 would be possible. However, countries such as Greece and Malta were particularly opposed to such a low price limit. They fear that setting the price limit too low could cause shipping companies based in their countries to go bankrupt because Russia could refuse to sell its crude oil at a very low price.
After the agreement in Brussels, Estonia’s Prime Minister Kallas announced that part of the deal would also be the rapid adoption of a ninth package with other sanctions against Russia. According to EU officials, there should already be new coordination talks at the weekend.
US welcomes EU agreement
The US government welcomed the EU’s agreement on the price cap. “This is good news,” said National Security Council communications director John Kirby. US President Joe Biden advocated this very emphatically at the G7 summit in the summer. “We believe the price cap will have the desired effect by limiting Mr Putin’s ability to profit from oil sales and his ability to continue using that money to fund his war machine,” Kirby said Russian President Vladimir Putin and his war against Ukraine.
US Treasury Secretary Janet Yellen also welcomed the price cap: “As the Russian economy is already shrinking and the budget is becoming tighter, the price cap will immediately curtail Putin’s most important source of income.”
Moscow: EU jeopardizes energy security
Criticism came from Moscow: According to the prominent Russian foreign politician and member of the Duma Leonid Slutsky, the EU is endangering its energy security with the price cap. In addition, the EU is also violating market laws, as the state agency TASS reported on Slutski’s reaction. “They didn’t insert a lid, they broke through the bottom again.” And all this to “satisfy the ambitions of overseas partners,” said Slutsky, referring to the United States. “But the Europeans cannot expect any help from there.” Slutsky heads the Foreign Affairs Committee in the State Duma.