At the moment, even experts do not want to predict exactly how the price cap will affect Russian oil. Such an instrument has not yet been tested. How effective it is depends on many factors.
But at least there is a chance that it will significantly reduce the earnings of warlord Vladimir Putin. Because Russia’s most important source of income is the sale of oil. Even more than gas, it helped the country build an absurdly large army.
Turning off this money tap is not easy. First of all, the EU countries had to find new suppliers. That was easier than with gas, but not cheap either. In particular, replacing the oil delivered by pipeline is difficult. That’s why there are still exceptions for pipeline oil in the European Union’s embargo and that’s why it only comes into force this Monday.
Added to this is the fact that oil is shipped worldwide and Russia can therefore easily find other buyers. In the worst case, this means that Europe has to pay significantly more money to new oil suppliers, but Russia finds new customers with little additional effort. The embargo would harm the Europeans more than Russia.
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So now the price cap: The West wants to use its influence on the oil market to depress the value of Russian oil. This impact comes from the fact that many oil tankers fly European flags and many of the industry’s insurance companies are based in the UK. The oil price cap stipulates that these companies can continue to do business with Russia, but no price above 60 US dollars can be paid for the oil in these deals.
This measure can probably still be circumvented: ships can be reflagged, Asian insurance companies can enter the market.
>> Read also: Dubious oil imports – How China is overturning sanctions
In order for the price cap to have an effect, it does not have to last forever. Observers feared that the oil embargo would drive up the market price and thus secure revenue for Russia. That should be avoided.
If that succeeds, the combined embargo and price cap could reduce Russian state revenues.
Other sanctions have so far only done so indirectly. The export bans have so far been aimed at the economy, which primarily has long-term effects. The blow to oil sales could work much faster.
More: EU wants to cap the price of Russian oil at $60