WASHINGTON (AP) — The Group of Seven nations and Australia joined the European Union Friday in adopting a $60-a-barrel cap on the price of Russian oil, a key step as Western sanctions aim to reorder the world oil market. to prevent price spikes and deprive President Vladimir Putin of funds for his war in Ukraine.
Europe needed to set the discounted price other nations will pay on Monday, when an EU embargo on Russian oil shipped by sea and the prohibition of insuring said supplies enters into force. The price cap, led by the rich democracies of the G-7it aims to prevent a sudden loss of Russian oil to the world that could lead to a further rise in energy prices. and higher fuel inflation.
US Treasury Secretary Janet Yellen said in a statement that the deal will help curtail Putin’s “main source of revenue for his illegal war in Ukraine while preserving the stability of global energy supplies.” .
The deal comes after a series of last-minute negotiations. Poland has long stalled an EU deal, seeking to set the limit as low as possible. After more than 24 hours of deliberations, as other EU nations signaled they would back the deal, Warsaw finally relented on Friday night.
A joint statement from the G-7 coalition released on Friday says the group is “prepared to review and adjust the maximum price as appropriate” taking into account market developments and potential impacts on coalition members and countries. low and middle income.
“Stopping Russia’s energy revenues is at the core of stopping Russia’s war machine,” Estonian Prime Minister Kaja Kallas said, adding that she was happy the cap was lowered by a few extra dollars on top of previous proposals. She said every dollar the cap was lowered amounted to $2 billion less for Russia’s war chest.
“It’s no secret that we wanted the price to be lower,” Kallas added, noting differences within the EU. “A price between $30 and $40 is what would hurt Russia substantially. However, this is the best compromise we could get.”
The $60 figure puts the top near the current price of Russian crude, which recently dipped below $60 a barrel. Some criticize that it is not low enough to cut off one of Russia’s main sources of income. That’s still a big discount to international benchmark Brent, which fell to $85.48 a barrel on Friday, but it could be high enough for Moscow to keep selling even if it rejects the idea of a cap.
There is a great risk for the world oil market of losing large amounts of crude from the world’s second largest producer. Could increase gas prices for drivers around the world, causing political turmoil for US President Joe Biden and leaders in other nations. Europe is already mired in an energy crisiswith governments facing protests over rising cost of livingwhile developing countries are even more vulnerable to changes in energy costs.
But the West has faced increasing pressure to target one of Russia’s top moneymakers. – oil – to cut funds flowing into Putin’s war chest and damage Russia’s economy as the war in Ukraine drags on for the ninth month. Oil and natural gas costs skyrocketed after demand rebounded from the pandemic and then the invasion of Ukraine destabilized energy markets, fueling Russia’s coffers.
US National Security Council spokesman John Kirby told reporters on Friday that “the cap itself will have the desired effect of limiting Mr. Putin’s ability to profit from oil sales and limiting his ability to continue using that money to finance their war machine.”
However, more uncertainty lies ahead. COVID-19 restrictions in China and a slowing global economy could mean less thirst for oil. That’s what OPEC and allied oil-producing countries, including Russia, signaled when cutting supplies to the world in October.. The OPEC+ alliance is scheduled to meet again on Sunday.
That competes with an EU embargo that could take more oil supplies off the market, raising fears of reduced supply and higher prices. Russia exports approximately 5 million barrels of oil per day.
Putin has said he would not sell oil under a cap price and would retaliate against nations that implement the measure. However, Russia has already diverted much of its supply to India, China and other Asian countries at reduced prices because Western customers have avoided it even before the EU embargo.
Most insurers are located in the EU or UK and may be required to participate in the price cap.
Russia could also sell oil off the books through the use of “dark fleet” tankers with unknown ownership. The oil could be transferred from one ship to another and mixed with oil of similar quality to disguise its origin.
Even under those circumstances, the cap would make it “more expensive, slow and cumbersome” for Russia to sell oil around the restrictions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.
Robin Brooks, chief economist at the Institute of International Finance in Washington, said the price cap should have been put in place when oil was hovering around $120 a barrel this summer..
“Since then, obviously, oil prices have fallen and the global recession is a real thing,” he said. “The reality is that it is unlikely to be binding given the current level of oil prices.”
European leaders promoted their work on the price cap, the brainchild of Yellen.
“The EU agreement on an oil price cap, coordinated with the G7 and others, will significantly reduce Russia’s revenue,” said Ursula von der Leyen, president of the European Commission, the EU’s executive arm. “It will help us stabilize global energy prices, which will benefit emerging economies around the world.”
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Casert reported from Brussels and McHugh from Frankfurt, Germany. AP reporter Aamer Madhani contributed from Washington.
