European Union Sets $60 Price Cap On Russian Oil

Following days of hard negotiations, EU officials have agreed to the imposition of a $60 price cap per barrel on Russian oil. Earlier this year in September, the G7 nations agreed in principle to a limit on the price of Russian seaborne crude in response to the country’s invasion of Ukraine.

Designed to impede Russia’s ability to raise revenue from the commodity, the policy is one of many economic sanctions now aimed at the Russian regime. Russia has warned that any price cap placed on their supply of oil to the global economy could risk driving commodity prices even higher.

Global Co-operation?

For the price cap to be effective, other nations outside of the EU and G7 will need to follow suit. China and India, both huge economies, have increased their buying of Russian oil post-Ukraine invasion after being offered discounted rates by Russia.

India’s Petroleum Minister recently stated that his government had a “moral duty” to its citizens to find oil at the best price and if that happens to be Russia, “We will buy oil from Russia“.

It has reportedly been agreed by EU ambassadors that the cap must be “at least 5% below the average market price“, a figure that will be under review regularly and adjusted accordingly, based on changing market conditions or adverse effects. Pending approval from the G7 and Australia, the cap will come into effect on Monday, in sync with the EU’s embargo on Russian seaborne crude.

Likely Impact

The idea of implementing a price cap on Russian oil was originally proposed by U.S. Treasury Secretary Janet Yellen, and countries participating in the cap are also set to rescind any provision of maritime services for any shipper that trades above the price limit.

Critics have suggested that the cap is too close to current prices for it to have any real damage on Russia’s ability to profiteer from oil production and finance its continued invasion of Ukraine. The figure agreed upon is above Russia’s cost of production and not far off the price at which Russian oil is currently trading.