The G-7 joins the EU in capping the price of Russian oil at $60 per barrel
WASHINGTON (AP) – The Group of Seven nations and Australia joined the European Union on Friday in agreeing to cap the price of Russian oil at $60 a barrel, a key step against Western sanctions. rearrange the global oil market to prevent price spikes and starve President Vladimir Putin of financing his war in Ukraine.
Europe had to set a reduced price that other countries would pay by Monday, when it EU embargo on Russian oil delivered by sea and the ban on insurance for those supplies comes into effect. The maximum price, which was led by the rich democracies of the G-7aims to prevent a sudden loss of Russian oil to the world that could lead to a new one surge in energy prices and further fuel inflation.
US Treasury Secretary Janet Yellen said in a statement that the deal would help limit Putin’s “primary source of revenue for his illegal war in Ukraine, while preserving the stability of global energy supplies.”
The agreement comes after a flurry of last-minute negotiations. Poland has long adhered to EU agreements, seeking to set the upper limit as low as possible. After more than 24 hours of deliberations, with other EU countries signaling they would back the deal, Warsaw finally relented late on Friday.
A joint G-7 coalition statement released Friday said the group is “ready to review and adjust the maximum price as necessary,” taking into account market developments and potential impacts on coalition members and low- and middle-income countries.
“Crippleing Russian energy revenues is at the heart of stopping the Russian war machine,” Estonian Prime Minister Kaja Kallas said, adding that she was happy that the cap had been lowered by a few dollars compared to earlier proposals. She said that every dollar that is cut by $2 billion is less for the Russian war chest.
“It’s no secret that we wanted the price to be lower,” added Kallas, pointing out differences within the EU. “A price between $30-40 is what would significantly hurt Russia. However, this is the best compromise we could reach.”
The $60 figure puts the cap close to the current price of Russian crude oil, which has recently fallen below $60 a barrel. Some criticize that it is not low enough to cut into one of Russia’s main sources of income. That’s still a big discount to international benchmark Brent, which fell to $85.48 a barrel on Friday, but could be high enough for Moscow to keep selling even as it rejects the idea of curbs.
There is a big risk to the global oil market from the loss of large volumes of crude oil from the world’s second largest producer. It could raise gasoline prices for drivers around the world, which caused a stir political turmoil for US President Joe Biden and leaders in other nations. Europe already is mired in an energy crisiswith governments in the face of protests over the rising cost of livingwhile developing countries are even more so vulnerable to changes in energy costs.
But the West faces increasing pressure to aim one of Russia’s main money makers — oil — to reduce funds flowing into Putin’s war chest and harm the Russian economy while the war in Ukraine drags on into the ninth month. The oil and natural gas costs increased after demand rebounded after the pandemic and then the invasion of Ukraine, energy markets were unsettled, feeding Russian coffers.
US National Security Council spokesman John Kirby told reporters on Friday that “the restriction itself will have the desired effect of limiting Mr. Putin’s ability to profit from oil sales and limit his ability to continue to use that money to fund his war machine.”
However, there is still uncertainty ahead. COVID-19 restrictions in China and a slowdown in the global economy could mean less thirst for oil. This was pointed out by OPEC and allied oil-producing countries, including Russia reduced shipments worldwide in October. The OPEC+ alliance is scheduled to meet again on Sunday.
That competes with an EU embargo that could take more oil supplies off the market, sparking fears of reduced supply and higher prices. Russia exports about 5 million barrels of oil per day.
Putin has said he will not sell oil under the price cap and will retaliate against nations that implement the measure. However, Russia already is diverted much of its supply to India, China and other Asian countries at reduced prices because Western buyers avoided it even before the EU embargo.
Most insurers are based in the EU or UK and may be required to participate in the price cap.
Russia could also sell oil off the books using “dark fleet” tankers with unclear ownership. Oil could be transferred from one ship to another and mixed with oil of similar quality to disguise its origin.
Even under those circumstances, the cap would make it more expensive, time-consuming and cumbersome for Russia to sell oil around the limit, 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 applied when oil hovered around $120 a barrel this summer.
“Since then obviously oil prices have fallen and the global recession is a real thing,” he said. “The reality is that it is unlikely to be binding given current oil prices.”
European leaders praised their work on the price limit, a idea of Yellen.
“The EU’s oil price cap agreement, coordinated with the G7 and others, will significantly reduce Russia’s revenues,” said Ursula von der Leyen, president of the European Commission, the EU’s executive arm. “It will help us stabilize global energy prices, which will benefit developing economies around the world.”
Casert reported from Brussels and McHugh from Frankfurt, Germany. AP reporter Aamer Madhani contributed from Washington.
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