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From this Monday, December 5, oil from Russia by sea is prohibited in the European Union. At the same time, EU, G7 and Australian caps on Russian oil prices came into effect. Measures designed to restrict Russian revenue while ensuring that the world oil market continues to be supplied. Moscow prepares a response.
The European Union embargo on Russian oil began on Monday, December 5, with the ban on all imports of crude from Russia transported by ship to the bloc. The embargo affects 90% of the oil that Moscow sold to EU countries before the war.
This decision was agreed upon in May by the EU at a summit in which an exception was granted to Hungary, which will be able to supply itself through the hydrocarbon that reaches it by pipeline, a request that the Hungarian prime minister raised during the negotiations.
To prepare for the possible consequences of this measure, the bloc’s countries have redoubled their efforts since March to minimize their dependence on the Kremlin’s fossil fuels. Europe will have to source from other continents, regions, and specific countries such as the Middle East, the United States, Norway, and Africa.
In October, the EU was importing around 1.4 million barrels of Russian crude oil per day and one million barrels of refined petroleum products. By February 2023, the embargo is expected to be extended to a ban on all converted petroleum products, including diesel.
The European embargo comes more than a month after the one launched by the United States and Canada, while Moscow has withdrawn 67 million euros from its oil sales to the EU since the start of the war in Ukraine.
A ceiling of 60 dollars a barrel
The EU veto took effect at the same time as the entry into force of the cap on the price of oil agreed with the G7 and Australia after long negotiations. Only oil sold at or below $60 a barrel may continue to be sold to these countries. Companies based in these countries are also prohibited from providing services that allow the maritime transport of oil at a price higher than $60 a barrel.
With the world’s top shipping and insurance companies based in the G7 countries, the decision could make it more difficult for Moscow to sell its oil at a higher price.
The EU and the G7 will review the level of the cap every two months, with the first review to be in mid-January. The crude oil price ceiling will be followed by a similar measure that will affect processed oil products, such as diesel, and which will take effect on February 5, although the level of that limit has not yet been determined.
The objective is to ensure that the cap is always at least 5% below the market price, low enough to hurt Moscow’s accounts, but also high enough so that Moscow maintains an interest in producing crude and that part of its oil continues to flow to the rest of the world. Thus, according to the EU, a reduction in world supply is avoided, which would lead to a rise in prices.
Moscow could stop selling oil to countries that apply the cap
Russia is the second largest exporter of crude oil in the world, Russia’s state revenue from the oil business would represent 37% of the budget.
Kremlin spokesman Dmitry Peskov said the Russian economy “has all the necessary capabilities” to finance the military offensive, adding that “these measures will have no impact” and warning of the danger of “destabilizing” the world energy market.
Although an official response to the measures is not yet known, the Vladimir Putin Administration has threatened to stop supplying oil to countries that support or resort to the ceiling on the price of crude oil, a move that is difficult to achieve.
Since the start of the invasion of Ukraine, Russia has been able to redirect much of its old shipments to Europe to customers such as India, China and Turkey.
Amid uncertainty about the impact of the new sanctions, OPEC oil countries, led by Saudi Arabia, and allied producers, including Russia, on Sunday reaffirmed production cuts of 2 million barrels per day and that they would be extended until the end of 2023.
The Chinese Ministry of Foreign Affairs, for its part, said Monday that Beijing will continue its energy cooperation with Russia on the basis of mutual respect and benefit.
With EFE and Reuters
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