With the European Union (EU) agreeing to cap the price of Russian crude oil at $60 (about 80,000 won) a barrel, the “Russian oil price ceiling” is on track. However, after heated debate, the deal has been a resounding success, but prospects are divided on the effect of the sanctions.
Reuters reported on the 2nd (local time) that the EU would implement a cap on Russian oil prices to $60 a barrel starting on the 5th at the earliest. Together with the EU, seven large countries (G7) also join the system, including the United States and Australia.
The scheme was intended to limit Russian oil export revenues that could flow into the war in Ukraine. By limiting the price ceiling to a certain range, Russia was prevented from reaping much benefit from rising oil prices. The EU-set price of $60 per barrel is lower than the current price of Russian crude. Over the past two days, the ESPO index, which shows the price range of Russian crude, has registered $73 a barrel, and the Solol index has registered $77.
However, some have pointed out that the price cap is too high and the effectiveness of sanctions could be reduced. This is because the effect of the sanctions practically disappears when Russian crude falls below $60 a barrel amid falling oil prices. The Ural index, another indicator of Russian crude oil prices, fell to $58 late last month, and the possibility of trading lower is under discussion in real trading.
The passive price-fixing reflects the Western judgment that Russia’s crude supply should not take too much of a hit. The purpose is to prevent a supply shortage and prevent a spike in oil prices.
As a result, there has been considerable controversy in the EU discussion process. Some countries, such as Poland, have stressed that the maximum price should be significantly lowered to $20-30 to ensure the effectiveness of the sanctions. The EU is said to have reached a deal proposing a scheme to review the future price ceiling every two months and to keep the price ceiling at least 5% below this level if Russian crude dips below 60 dollars a barrel.
Ukraine “Insufficient”… “I will not sell oil”
On the 3rd, Ukrainian President Volodymyr Zelensky declared: “I cannot define it as a serious decision to limit oil prices to a level comfortable enough for the budget of a terrorist country (Russia)”.
Russia is unacceptable. “We will not accept this upper limit,” Kremlin spokesman Dmitry Peskov said. Mikhail Ulyanov, the Russian ambassador to Austria, mentioned a plan to cut off oil supplies altogether, saying, “Starting this year, Europe will live without Russian oil.”
Russia is also showing a move to build a transportation system that avoids oil price caps. Countries participating in this scheme plan to ban shipping services such as insurance and transportation of exported Russian crude at prices above the ceiling in the future. The Financial Times (FT) has forecast that Russia has acquired more than 100 vessels this year and may use them as a “shadow fleet” supplying India, China and Turkey, which are the main buyers of its crude oil.
The international community is paying attention to changes in oil prices following the implementation of this system. OPEC+, which includes major oil-producing countries, holds a regular meeting on the 4th to decide whether to cut production. The FT reported that OPEC+ is very likely to freeze production at the current level.
