War in Ukraine: EU agrees to cap Russian oil prices

One more sanction against the invader. The countries of the European Union reached an agreement on Friday on a cap of 60 dollars per barrel on the price of Russian oil, a tool designed by the West to deprive Moscow of the means to finance its war in Ukraine.

The agreement, the foundations of which were laid on Thursday by the ambassadors of the Twenty-Seven, coordinated on this file with their G7 allies, in particular the United States and the United Kingdom, as well as Australia, remained suspended at the decision from Warsaw, which gave the green light on Friday evening. Washington deemed the European agreement “welcome”.

The mechanism envisaged plans to impose a ceiling of 60 dollars per barrel on the prices of Russian oil sold to third countries, in addition to the EU embargo which comes into force on Monday.

Billions of euros in sales

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 energy issues at the Jacques-Delors Institute.

“We can officially approve this decision,” said Andrzej Sados, Poland’s ambassador to the EU, in Brussels.

“The EU remains united and stands in solidarity with Ukraine”, welcomed the Czech Presidency of the Council of the EU in a tweet, specifying that the decision would enter into force as soon as it is published in the Official Journal.

The reinforced European embargo

The device will prohibit companies from providing the services allowing the maritime transport (freight, insurance, etc.) of Russian oil beyond the ceiling of 60 dollars, in order to limit the income derived by Moscow from its deliveries to countries like China and India.

The instrument must reinforce the effectiveness of the European embargo which intervenes several months after that already decided by the United States and Canada.

Russia is the world’s second-largest exporter of rough, and without this cap, it would be easy for it to find new buyers at market prices. Currently, G7 countries provide insurance services for 90% of global cargo and the EU is a major player in sea freight. Hence a credible deterrent, but also a risk of losing markets to competitors.

The price of a barrel of Russian oil (crude from the Urals) is currently fluctuating around 65 dollars, barely above the European ceiling, which implies a limited impact in the short term. The instrument proposed by Brussels plans to add a limit set at 5% below the market price, in the event that Russian oil falls below 60 dollars – the price must in any case remain above production costs to encourage Russia to continue deliveries and not cut the floodgates.

Effective Monday, the EU’s embargo on Russian oil by sea will cut two-thirds of its crude purchases from Russia. Germany and Poland having also decided to stop their deliveries via an oil pipeline by the end of the year, total Russian imports will be affected by more than 90%, say the Europeans.

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