WASHINGTON (AP) — The Group of Seven nations and Australia joined the European Union on Friday in adopting a $60-a-barrel price cap for Russian oil, a key step as Western sanctions aim to reshape the market world oil to prevent price spikes and deprive President Vladimir Putin of funding for his war in Ukraine.
Europe was due to set the reduced price other nations would pay by Monday, when an EU embargo on Russian oil shipped by sea and a ban on insurance for these supplies take effect. Price caps, led by wealthy G-7 democraciesaims to prevent a sudden loss of Russian oil to the world that could lead to a further spike in energy prices and continued fuel inflation.
US Treasury Secretary Janet Yellen said in a statement that the deal will help curtail Putin’s “primary source of revenue for his illegal war in Ukraine, while simultaneously preserving the stability of the world’s energy supply.”
The deal comes after a flurry of last-minute negotiations. Poland has long delayed a deal with the EU, seeking to set the ceiling as low as possible. After more than 24 hours of deliberations, as other EU countries signaled they would support the deal, Warsaw finally relented on Friday night.
A joint statement from the G-7 coalition released on Friday said the group is “ready to review and adjust the maximum price as appropriate”, taking into account market developments and potential impacts on members of the coalition and low- and middle-income countries.
“Criminalizing Russia’s energy revenue is at the heart of shutting down the Russian war machine,” Estonian Prime Minister Kaja Kallas said, adding that she was happy the ceiling had been lowered by a few extra dollars from to the previous proposals. She said every dollar the cap was reduced was $2 billion less for Russia’s war chest.
“It’s no secret that we wanted the price to be lower,” added Kallas, pointing out the differences within the EU. “A price between $30 and $40 is what would hurt Russia significantly. However, this is the best compromise we can get.
The $60 figure sets the ceiling near the current price of Russian crude, which recently fell below $60 per barrel. Some criticize this as not being low enough to cut into one of Russia’s main sources of revenue. It’s still a steep discount to international benchmark Brent, which slid to $85.48 a barrel on Friday, but could be high enough for Moscow to keep selling even rejecting the idea of a ceiling.
The global oil market is in serious danger of losing large quantities of crude from the world’s second largest producer. This could drive up gas prices for drivers around the world, which has sparked political unrest for US President Joe Biden and leaders of other nations. Europe is already mired in an energy crisiswith governments facing protests over soaring cost of livingwhile developing countries are even more vulnerable to variations in energy costs.
But the West faces increasing pressure to target one of Russia’s main moneymakers – oil – to reduce the funds flowing into Putin’s war chest and harm the Russian economy as the war in Ukraine drags on into a ninth month. Oil and natural gas prices have soared after demand rebounded from the pandemic, then Ukraine’s invasion destabilized energy markets, feeding Russia’s coffers.
U.S. 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 its ability to continue to use that money to finance its war machine”.
More uncertainty is ahead, however. China COVID-19 Restrictions and a slowing global economy could mean less thirst for oil. That’s what OPEC and allied oil-producing nations, including Russia, underscored by cutting the world’s supply in October.. The OPEC+ alliance is due to meet again on Sunday.
This competes with the EU embargo which could take more oil off the market, raising fears of a supply shortage and rising prices. Russia exports about 5 million barrels of oil per day.
Putin said he would not sell oil below a price cap and would retaliate against countries that enforce the measure. However, Russia has already redirected much of its supply to India, China and other Asian countries at reduced prices as Western customers avoided it even before the EU embargo.
Most insurers are located in the EU or UK and may be required to participate in price caps.
Russia could also sell oil on the black market using “dark fleet” tankers to obscure owners. Oil could be transferred from ship to ship and mixed with oil of similar quality to disguise its origin.
Even then, the cap would make it “more costly, time-consuming and cumbersome” for Russia to sell oil while adhering to 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 as oil hovered around $120 a barrel this summer..
“Since then oil prices have obviously fallen and the global recession is a reality,” he said. “The reality is that it is unlikely to be binding given the current oil price situation.”
European leaders touted their work on price caps, a brainchild of Yellen.
“The EU’s 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 executive arm of the EU. “This will help us stabilize global energy prices, benefiting 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.
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