Russian oil capped at $60 after G7 and Australia deal | War in Ukraine

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Russian oil capped at $60 after G7-Australia deal | War in Ukraine

Tank cars stopped on the tracks in Omsk, Russia

The price of oil sold by Russia to Western countries will be capped at US$60 (CA$81) a barrel from the next few days, as the countries of the European Union, then those of the G7 and Australia found a agreement three days before the entry into force of the European embargo.

The G7 and Australia […] reached consensus on a maximum price of 60 US dollars per barrel for crude oil of Russian origin transported by sea, these countries announced in a joint press release.

US Treasury Secretary Janet Yellen in a statement welcomed the announcement, which is the culmination of months of effort by our coalition.

The agreement was enabled by the consensus reached earlier in the day by the 27 countries of the European Union, which succeeded in rallying Poland.

The finance ministers of the G7 countries had agreed early September on this tool, designed to deprive Moscow of the means to finance its war in Ukraine.

Last April, protesters in Berlin demanded a German embargo on Russian oil and gas .

Concretely, the price set must be high enough for Russia to have an interest in continuing to sell them oil, but lower than the price to limit the income it can derive from it.

The mechanism will come into force on Monday or very soon after, specify the G7 and Australia. The EU embargo on Russian oil transported by sea begins on Monday.

Thus, only oil sold by Russia at a price equal to or less than US$60 can continue to be delivered. Beyond this ceiling, it will be prohibited for companies to provide services allowing maritime transport (freight, insurance, etc.).

Currently, the G7 countries provide the insurance benefits for 90% of global cargo and the EU is a major player in sea freight – providing a credible deterrent, but also the risk of losing markets to competitors.

Russia, the world's second largest exporter of crude oil, had warned that it would no longer deliver oil to countries that adopted this cap.

Without this ceiling, it would be easy for him to find new buyers at the market price. The price of a barrel of Russian oil (crude from the Urals) is currently hovering around US$65, barely above the European ceiling, implying a limited short-term impact.

We will be ready to review and adjust the maximum price if necessary, assure the G7 and Australia in their press release. And a ceiling should also be found for Russian petroleum products, from February 5, 2023.

The European embargo comes several months after the one already decided by the United States and the Canada. But Westerners must also come to terms with the interests of powerful British insurers or Greek shipowners.

The EU remains united and shows solidarity with Ukraine, welcomed the Czech Presidency of the Council of the EU in a tweet.

Russia has earned 67 billion euros (C$95 billion) from its oil sales to the EU since the start of the war in Ukraine, while its annual military budget stands at around 60 billion (C$85 billion). CA), recalls Phuc-Vinh Nguyen, an expert in energy issues at the Jacques-Delors Institute.

The seat of OPEC in Vienna

The instrument proposed by Brussels plans to add a limit set at 5% below the market price in the event that Russian oil falls below 60 dollars.

In fact, some experts fear a destabilization of the world market and wonder about the reaction of the OPEC producing countries, which meet on Sunday in Vienna. This cap will help stabilize the world energy markets […] and will directly benefit emerging economies and developing countries, since Russian oil can be delivered to them at prices below the ceiling, on the contrary assured on Twitter the President of the European Commission, Ursula von der Leyen.

< p class="e-p">As of Monday, the EU's embargo on Russian oil by sea will cut two-thirds of its crude purchases from Russia. Germany and Poland have also decided to stop their deliveries via a pipeline by the end of the year, total Russian imports will be affected by more than 90%, say the Europeans.

On the other hand, an oil price ceiling has never been seen. We are in the unknown, alarmed Phuc-Vinh Nguyen, stressing that the reaction of OPEC countries or big buyers like India and China will be crucial.

The only certainty, according to him: a cap, even at a high price, will send a strong political signal to Russian President Vladimir Putin, because, once in place, this mechanism can be tightened.

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