Russian oil price cap: 5 minutes to understand a long-awaited announcement

by time news

It’s a new blow aimed at weakening Moscow and its markets a little more. kyiv even predicted this Saturday to Russia that its economy would be destroyed by the cap on the price of its oil, on which the European Union, the G7 and Australia agreed, in order to limit the means of Moscow to finance the conflict in Ukraine. What are the issues and reactions around this cap? The Parisian takes stock.

An agreement that sets the price per barrel at 60 dollars

This agreement was made possible by the consensus reached on Friday by the Twenty-Seven of the European Union. The finance ministers of the G7 countries had agreed in early September on this tool, designed to deprive Russia of financial means.

“This cap will help stabilize global energy markets (…) and will directly benefit emerging economies and developing countries,” since Russian oil can be delivered to them at prices below the cap, the president said on Twitter. of the European Commission, Ursula von der Leyen.

The mechanism will come into force on Monday “or very soon after”, specify the G7 and Australia, with a price set at a maximum of 60 dollars per barrel. It is indeed Monday that the embargo of the EU on Russian oil transported by sea begins, several months after that decided by the United States and Canada.

The price of a barrel of Russian oil (crude from the Urals) is currently fluctuating around 65 dollars, barely above the European ceiling, implying a limited impact in the short term. US Treasury Secretary Janet Yellen, however, welcomed the announcement, which “is the culmination of months of effort by our coalition”. A ceiling should also be found for Russian petroleum products from February 5, 2023.

The provision of services prohibited beyond the capped price

Concretely, this means that only oil sold by Russia at a price equal to or lower than 60 dollars per barrel can continue to be delivered. Beyond this ceiling, it will be prohibited for the companies of the signatory countries of the agreements to provide the services allowing maritime transport (freight, insurance, etc.).

As tanker traffic is dominated by Greece, insurance is concentrated in London and commercial activity is concentrated in Switzerland, Russia will not only have to seek new buyers, but also rebuild alternative supply chains to the world market, notes BBC Russian.

Currently, the G7 countries provide insurance services for 90% of global cargoes and the European Union is a major player in maritime freight, resulting in a credible deterrent, but also a risk of losing markets to the profit of competitors.

China and India, for example, have not yet taken a position on whether or not they would implement a similar process. Russia, the world’s second largest exporter of crude, had for its part warned that it would no longer deliver oil to countries that would adopt this cap.

Moscow “does not accept”, kyiv rejoices

“We will not accept this ceiling”, declared in reaction Saturday afternoon the spokesman of the Russian presidency, Dmitry Peskov, quoted by the Russian agency RIA Novosti. However, he said that Moscow had “prepared” upstream “for such a ceiling”, without giving further details. He also said that the situation was “being analyzed” and that decisions would be made accordingly, according to statements reported by the TASS agency.

For its part, the Ukrainian presidency welcomed this Western decision: “We always reach our goal and the economy of Russia will be destroyed, and it will pay and be responsible for all its crimes”, affirmed on Telegram the chief of staff of the Ukrainian presidency, Andriï Yermak. “However, it would have been necessary to lower (the ceiling price) to 30 dollars to destroy (the Russian economy) even faster,” he added.

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 amounts to around 60 billion, recalls Phuc-Vinh Nguyen, an expert on issues energy at the Jacques-Delors Institute.

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