EU wants to cap the price of Russian oil at $60

Oil tanker off New York

The price cap is intended to keep costs low on the world market.

(Photo: REUTERS)

Zurich, Brussels The EU is about to decide on a price cap for Russian oil. According to the ideas of the Commission and the Member States, Russia should in future receive a maximum of 60 dollars per barrel of oil. The upper limit was disputed until recently. Poland and the Baltic states demanded that the maximum price be set even lower, but this was not successful.

In the body of EU ambassadors, the member states have now agreed on the price limit of 60 dollars, as the Handelsblatt learned from diplomats. If there is no veto from the capitals, the agreement can be announced this Thursday.

The price cap complements the oil embargo, which will come into effect next Monday. The EU states decided on this embargo against Russia back in May. They allowed exceptions for oil delivered by pipeline, which was particularly important for Hungary. They also allowed sufficient time for states to establish new transport routes. That was a challenge for Germany, among others.

In addition, the EU countries agreed in October to push through a decision by the G7 countries. According to this, services that help Russia to sell its oil should be banned if the price of the oil is above a certain value.

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This means transport services and also technical assistance, brokerage services, financing and insurance of transactions and transport.

Price cap for Russian oil: G7 countries and Australia want to go along with it

The law states that the EU countries will decide the amount of this price cap together with the G7 countries and Australia. The group is called the Price Cap Coalition. In fact, agreement within the EU is the difficult part of the negotiations. The other states involved have indicated that they will join a European compromise.

If the EU countries have now agreed on a level, the value can be officially set by Monday. If that had not happened, the ban on aid without a price limit would have come into force. European companies should therefore no longer have been allowed to participate in the oil business.

The states involved want to punish Russia for the war of aggression against Ukraine. Without a price cap, the EU embargo would have pushed up the world market price for oil and thus Russia’s sales. Although the country could have sold less oil, the price per liter would have risen significantly.

With the oil price cap, the Europeans are also reacting to international pressure. In recent months, the Americans in particular have tried to dissuade the Europeans from imposing a tough embargo. The US government feared that by excluding Russia, the EU would tighten supply on the world market too much and that prices in the US would then also skyrocket.

Janet Yellen

The US Treasury Secretary fears a price jump on the world market in the event of a hard price limit.

(Photo: SARAH SILBIGER/The New York Time)

US Treasury Secretary Janet Yellen has warned that sanctions against Russia’s energy sector should be imposed in an “orderly manner” so as not to “cause price jumps”. Developing countries have also accused the EU of making oil more expensive with its Russia sanctions.

Russian oil is already trading at a discount

Because of the cooling global economy, the price of oil has fallen significantly since the summer.

The fixed maximum price of $60 per barrel (around 159 liters) is around ten percent below the price that Russia currently receives for its oil. Russian crude oil is currently trading at a discount of around $20 to the world market price. The European reference price Brent is currently trading at just under $88 per barrel.
>> Read also: Dubious oil imports – How China is overturning sanctions

Analysts therefore expect the price limit to take hold and shake up the oil market, at least in the short term. According to Helima Croft, commodities expert at investment bank RBC Capital Markets, the ban “could indeed cause an initial disruption of several million barrels a day.”

Large oil importers like India are unlikely to find enough tankers and insurers to handle crude oil shipments, at least initially. Greek tankers currently ship about half of Russian oil exported by sea, according to data from the Institute of International Finance.

oil tanker

Greek shipowners dominate the world market for the transportation of Russian oil.

(Photo: Reuters)

It is unclear how Russia will react to the new sanctions. The country could advocate further production cuts in the OPEC plus network. On December 4, Opec plus Saudi Arabia and Russia will decide on the funding policy from January. Europe is dependent on additional oil supplies from the Gulf States and Iraq, says analyst Croft. With production cuts in the Opec-plus network, Russia could drive up the costs of the sanctions policy for Europe.

Oil has traditionally been the most important source of foreign exchange for Russia. But because of the sharp rise in gas prices, Moscow currently has particularly high income there.

Gas has so far been exempt from European sanctions. However, the Russian government has stopped most of the deliveries via the pipelines to Europe. The EU even suspects that Russia is responsible for blowing up the Nord Stream 1 and 2 Baltic Sea pipelines.

More: The US wants to dissuade the EU from its previous plan of an oil embargo against Russia

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