Most Russian crude oil exports to Europe are now banned, marking a bold attempt by the West to pile financial pressure on President Vladimir Putin. Brutal war in Ukraine Enters tenth month.
There was an oil embargo As agreed It came into effect in the European Union on Monday, at the end of May. This was accompanied by a new price ceiling for Russian crude oil Formed by the G7 countries. It is designed to limit the Kremlin’s revenue while allowing countries like China and India to continue buying Russian oil, as long as they pay no more than $60 a barrel.
What happens next? The response may depend on Moscow, which has vowed not to cooperate with the price ceiling and may cut its output, which could roil global energy markets. Global crude prices It rose 2.6% on Monday as investors nervously eyed the next move.
Oil embargo, price cap and the Potential impact.
The EU is now banning Russian crude oil imports by sea, setting up a phase-out meeting. 90% of oil is imported from Russia. This is a big move for Europe Third Its oil imports from Russia in 2021. More than half of Russia’s exports went to Europe 12 months ago.
There are a few exceptions. Bulgaria received a temporary carve-out. The ban does not target imports through the pipeline. This means that the Drushpa pipeline can continue to supply Hungary, Slovakia and the Czech Republic. (Germany and Poland are working to stop pipeline imports from Russia soon.)
But the prohibition is significant. In 2021, the EU imported 48 billion euros ($50.7 billion) worth of crude oil and 23 billion euros ($24.3 billion) worth of refined oil products from Russia. Two-thirds of those imports come by sea.
A ban on Russian refined oil products such as diesel fuel imported by sea will begin in early February.
The European Union and other members of the G7 — the United States, Canada, Japan and the United Kingdom — and Australia also agreed on Friday. Control the price of Russian crude oil $60 per barrel, a policy aimed at Moscow’s other customers. The measure also came into effect on Monday.
The price range, adjustable over time, is designed to be implemented by companies providing shipping, insurance and other services for Russian oil. If a buyer pays more than the cap, they will suspend their services, In theory prevents oil from being sent. Most of these companies are located in Europe or the United Kingdom.
Despite unprecedented sanctions by the West, Russia’s economy and government coffers have been bolstered by its lucrative position as the world’s second-largest crude oil exporter after Saudi Arabia.
In October, Russia exported 7.7 million barrels of oil per day, just 400,000 barrels less than pre-war levels, the International Energy Agency said. Revenue from crude oil and refined products currently stands at $560 million per day.
By quickly cutting off imports, Europe hopes to limit infiltration into Putin’s war chest, making it harder for him to continue his war in Ukraine.
But countries want it China and India They have resorted to buying surplus barrels. That’s where the price range comes in.
The G7 countries do not want to remove Russian oil from the market entirely because high inflation would push up global prices at a time when it would hurt their economies. By implementing a price cap, they believe, they can keep barrels flowing, but make the business less profitable for Moscow.
It is not certain. Countries like Poland and Estonia wanted a lower price limit, stressing that $60 is too close to the current market price for Russian oil. At the end of September, Russian Urals crude was trading as low as $64 a barrel.
“Today’s oil price cap agreement is a step in the right direction, but it is not enough,” said Estonian Foreign Minister Urmas Reinsalu. tweeted on Friday. “Why are we still willing to fund Russia’s war machine?”
Enforcement can also be difficult. Russia and its clients may begin using more ships and insurance providers outside Europe and the United Kingdom, relying increasingly on the so-called “shadow fleet” to circumvent the rules.
“The capability of that fleet is increasing, and it could handle Russian blocks for a while,” said Richard Brons, head of geopolitics at research firm Energy Aspects.
Kremlin spokesman Dmitry Peskov said Monday that Moscow “will not recognize any price caps.” Russian Deputy Prime Minister Alexander Novak said on Sunday that Russia would not export oil to countries abiding by the cap, even if it cut production.
Oil prices have fallen sharply since the spring as fears of a global slowdown that could hurt demand have come to the fore. Now, all eyes are on Russia’s retaliation. Peskov said the price cap was a step that would “destabilize global energy markets.”
According to the IEA, Moscow needs to find alternative customers for the 1.1 million barrels per day of crude still flowing to Europe. It won’t be easy, especially as coronavirus restrictions and China’s growth slowdown hurt demand in the world’s second-largest economy.
A price range increases uncertainty. Customers may decide that buying Russian cargo is too risky and complicated, and may drive another batch of buyers out of the market.
As the Kremlin has threatened, Russia may cut its oil production. The IEA estimates that Russia will cut production by an additional 1.4 million barrels per day by early 2023.
Other factors also dictate prices. Rare protests in China have raised questions about the country’s commitment to its “zero-Covid” policy, and demand will increase if its economy picks up speed.
The Organization of the Petroleum Exporting Countries, or OPEC, could change its output. The cartel decided on Sunday Sticking with previously announced production cutsGives more time to assess the effects of bans and price caps.
Europe’s ban on refined oil products in February could be a flashpoint for energy prices, as the region relies on Russian diesel. Finding alternative sources in a couple of months can be tricky.
— Anna Chernova contributed reporting.