The member states of the European Union have agreed, after lengthy negotiations, on a maximum price for Russian oil transported by sea. The Czech presidency announced it on Friday evening.
The Europeans want to force Russia to sell its oil to third countries at a maximum price of $60 a barrel. The recent market price for a barrel of Ural oil from Russia was around $65. The measure comes in addition to the introduction of a European embargo on imports of Russian oil by sea, which will take effect on Monday.
Both measures are expected to affect the financing of the Russian war machine in Ukraine. For example, Russia, the second largest exporter of crude oil, has received €67 billion in oil sales to the European Union since the invasion began. That’s more than the Kremlin’s annual military budget.
Through support services
In concrete terms, the Member States prohibit European companies from providing services that allow the transport of Russian oil sold for more than 60 dollars a barrel. The measure is being implemented in coordination with international partners within the G7: US, UK, Canada and Japan.
Western countries can have an impact on Russian oil supplies to third countries such as India and China because they control important support services. For example, G7 countries currently provide insurance services for 90% of global cargo. The EU is also a major player in the maritime transport of goods.
Stabilize the energy markets
At the same time, it remains possible for Western shipping companies and other service providers to bring Russian oil to third countries, provided the oil is sold cheaper. This should stabilize the energy markets somewhat and give relief to the poorest countries. “This cap will directly benefit emerging economies and developing countries,” European Commission President Ursula von der Leyen assured in response to the deal.
To respond to market developments, the price cap will be reviewed every two months. The price of Russian oil quoted by the International Energy Agency (IEA) will be used as a reference. The ceiling must always remain at least five per cent lower than this reference price.
‘every dollar counts’
There has been consensus at European level on the principle of the price cap for some time, but Poland has tried in recent days to pass a lower maximum price. With support from the Baltic states, the country has pushed for a ceiling of $30 a barrel, a level close to production costs, estimated at $20 to $40 a barrel.
“Every dollar counts. Every dollar we can negotiate means about $2 billion less revenue for Russia,” Estonian Prime Minister Kaja Kallas said. Ultimately, the Poles and the Balts gave up their attempt on Friday. As part of the deal, according to Kallas, a ninth package of sanctions against Moscow would soon be implemented.
A price cap in the region of USD 30 has met with objections from countries with large shipping industries, such as Greece and Malta. They feared that too low a price could encourage shipping companies to move if Russia refused to sell its oil cheaper.
