Europe is stuck with the problem of imposing a ceiling on Russian oil prices
The EU faces great pressure to cut Moscow’s energy revenues, but has not been able to find a common voice in imposing a ceiling on Russian oil prices.
The meeting on the ceiling price of Russian crude oil on November 28 ended in a stalemate, when the European Union (EU) could not agree on a ceiling price. An EU diplomat said Poland demanded a much lower price ceiling than the G7 proposed to reduce Russia’s energy revenues.
The EU is under increasing pressure from the G7 and the US to impose a ceiling on Russian oil prices from December 5, when the EU’s ban on importing Russian oil by sea from the bloc as well as the UK took effect.
But with a week left to the deadline, disagreement still beset the bloc’s discussions. Poland and the Baltic countries want to impose a price of about 20-30 USD per barrel on Russian oil, while Greece, Malta and the Republic of Cyprus want to set a price above 70 USD or the EU has a compensation mechanism to protect their shipping industry, according to several European diplomats.
The goal of the price cap is to keep Russian oil flowing on the market, while limiting the amount of money Moscow can make from those barrels. The European Commission proposed a ceiling price of $65-70 per barrel, while US Treasury Secretary Janet Yellen suggested $60.
Some observers think oil prices at $65 will not cause much of Russia’s revenue to fall. Russia’s Urals crude is trading at around $66 per barrel, by Investing, while Brent crude is priced at around $81 per barrel.
“At this price point, Europe’s goal is to reduce inflation rather than reduce Russian sales,” said Helima Croft, head of commodity strategy at RBC Capital Markets.
Consulting firm Rystad Energy estimates the cost of producing Russian oil at about $20-50 per barrel depending on the type.
“We want sanctions that are really effective in this war with a price ceiling of about $30-40, so that Russia can feel them,” Ukrainian President Volodymyz Zelensky supported the idea of lowering the price ceiling. of Poland.
However, oil historian Gregory Brew says it is difficult to determine whether the price ceiling is high or low, because Russia currently sells crude oil at a steep discount.
Brew explains that big buyers like China and India are importing Russian oil at about $25 less than Brent. They and other customers in Asia will not feel the need to commit to the price ceiling set by the US and its European allies, because it is not lower than what they are paying.
“They can negotiate very favorable terms with Russian oil companies that are looking to sell to stay afloat,” Brew said, adding that could be the reason why the Russian oil price ceiling plan is complete. total failure.
For Livia Gallarati, senior oil analyst at Energy Aspects based in London, the idea of an oil price ceiling could be controversial as Moscow has repeatedly warned it will not trade with any country. who comply with this measure.
“We think the Russians will do as they say, because agreeing to a price ceiling will set a precedent for buyers to decide what price they want,” Gallarati said.
The only thing that Asian customers might have to consider participating in the decision to impose a ceiling on Russian oil prices is to continue to use European shipping and insurance services. However, there is no guarantee that European companies want to process orders related to Russian oil.
Gallarati added that Russia’s oil price ceiling may not have much of an impact on the oil market. “If Russia continues to sell at the current price, no country wants to join the price ceiling with the West, because they could be cut off by Russia from cheap oil,” she said.
Observers warn that a move to lower prices could exacerbate the global energy crisis, especially if Russia retaliates. If Moscow cuts production more than expected, world gasoline prices will skyrocket, as countries like the US, Japan and Germany struggle to find ways to control inflation.
Russian President Vladimir Putin said last week that the West’s plan to impose a ceiling on Russian oil prices would have “serious consequences” for the energy market. Russia’s oil exports in 2022 are estimated at 9.7 million barrels per day, higher than 2021, according to the International Energy Agency.
Even if the oil price ceiling measures are agreed by the West, Giovanni Staunova, an analyst at USB bank in Switzerland, does not believe oil traders will comply. He thinks they will try to find loopholes to circumvent the law.
“The West’s desire to impose a ceiling on Russian oil prices is very strong, but the reality will be different,” Staunova said.