Russian oil export prices will be capped by Western governments in an effort to reduce the amount of money Moscow receives from fossil fuels to fund its military, budget, and invasion of Ukraine. The cap is scheduled to go into effect on Monday, the same day that the European Union will impose a boycott on the majority of the crude oil exported by sea from Russia. The Group of Seven countries and Australia approved the agreement later that day after the EU agreed to a $60 per barrel threshold.
As concerns about lost supply from the boycott compete with worries about lower demand from a slowing global economy, the twin measures could have an ambiguous impact on the price of oil.
Together with other Group of 7 allies, U.S. Treasury Secretary Janet Yellen proposed the cap as a way to keep Russian oil flowing to the world economy while limiting Russia’s earnings. The objective is to harm Moscow’s finances while preventing a sharp increase in oil prices if Russia’s oil is abruptly removed from the world market.
According to Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels, a $60 cap won’t have much of an effect on Russia’s finances. Given that it would be close to where Russian oil is already being sold, he claimed that it “will almost go unnoticed.”
Russian Urals blend trades at a significant discount to the global benchmark Brent and this week fell below $60 for the first time in months amid concerns that China’s demand may be affected by COVID-19 outbreaks.
Russia has declared that it will not adhere to a cap and that it will stop supplying nations that do. Russia might cut off shipments as retaliation in the hopes of profiting from a sharp increase in the price of oil on anything it can sell in spite of the sanctions.
Chinese and Indian consumers might not agree to the cap, and Russia or China might try to establish their own insurance companies to take the place of those that the United States, the United Kingdom, and Europe have barred.
Russia, like Venezuela and Iran, could sell oil illegally by utilising a “dark fleet” of tankers with unknown ownership. Oil could be moved between ships and blended with oil of comparable quality to conceal.
