The mechanism provides for the prevention of maritime transport services (freight and insurance…) for Russian oil beyond the specified ceiling, with the aim of limiting Moscow’s revenues from deliveries to countries that do not impose an embargo, such as China and India.
The aim is to reduce the resources that allow Russia to finance the war on Ukraine.
The European Commission proposed imposing a basic ceiling of $60, accompanied by a limit of 5 percent below market prices if the latter were to fall below that threshold, according to identical diplomatic sources.
The proposal receives a wide consensus among Member States, and it remains only for Warsaw to give its green light to ratify the mechanism.
The European Union has previously decided to prevent its member states from buying Russian oil through sea routes, as of the fifth of December. This ban will cancel two-thirds of European purchases of Russian oil.
Germany and Poland decided on their own to halt pipeline deliveries of Russian oil by the end of the year. The Europeans assert that Russian imports will be affected by more than 90 percent.
Reuters had quoted an unnamed senior official in the Group of Seven as saying that the countries of the group are “very close” to agreeing on a ceiling for the price of Russian seaborne oil at $60 a barrel, with an adjustment mechanism to keep the ceiling below the market price by five percent.
The official told reporters that the agreement should be finalized in the coming days or next Monday at the latest, and expressed confidence that the price cap would limit Russia’s ability to fight its war against Ukraine.
The official stated that G7 officials have been in close contact with the markets over the price cap, and appeared to be “very comfortable” with the mechanism, which aims to limit Russia’s oil revenues while maintaining adequate supplies for the global market.
Imaginary profits
For his part, Phuc Vinh-Nguyen, an expert on energy issues at the Jacques Delors Institute, told Agence France-Presse that Russia has achieved 67 billion euros from selling its oil to the European Union since the start of the war on Ukraine, while its military budget is about 60 billion annually.
The mechanism for framing the price of Russian oil, which is being finalized on Thursday evening, would enhance the effectiveness of the embargo. Indeed, within 6 months, European operators will not be able to finance or insure ships that transport Russian oil to other countries, with the aim of blocking the redirection of Russian exports.
In addition to the European Union, the coalition of countries that wants to impose a ceiling on the price of Russian oil includes Australia and all the G7 countries, including the United States.
But at present, the G7 countries provide insurance policies for 90 percent of global shipments. The European Union is a player in the shipping sector.
Russian oil production
Russia is the second oil exporter in the world and without this cap it would be very easy to deliver oil to new buyers at market prices.
The price of Russian oil (Ural crude) on Thursday evening reached about $66 per barrel, slightly more than the European ceiling, which means that the expected impact will be limited immediately.
Poland and the Baltic states are seeking to impose a ceiling well below $60, arguing that this price has no impact on the market other than symbolic and political significance.
In any case, the price should remain higher than production prices, in order to push Russia to continue selling and not stop deliveries.
Some experts fear the destabilization of the global oil market and wonder about the reaction of the Organization of Petroleum Exporting Countries (OPEC), which is scheduled to hold a meeting Sunday in Vienna.
The Kremlin has warned that Russia will no longer deliver oil to countries that adopt this ceiling.
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