Price ceiling for oil transported by sea in Russia agreed upon by the European Union, G7 and Australia was in effect.
The $60 per barrel cap, effective Monday, is intended to limit Russia’s ability to finance the war in Ukraine while ensuring the country continues to supply global markets.
However, Moscow has vowed to non-compliance with measures even if you have to cut production.
This ceiling is in addition to the EU embargo on Russian crude oil imports by sea and similar commitments by the United States, Canada, Japan and the United Kingdom.
That means that Russian oil that is only sold for $60 a barrel or less can be shipped to third-party countries using G7 and EU tankers, insurance companies and credit institutions. Because the world’s key shipping and insurance companies are based in the G7 countries, this ceiling could make it difficult for Moscow to sell its oil at a higher price.
Countries that do not adopt this measure can continue to buy Russian oil above the ceiling price, but do not need to use Western services to buy, insure or transport oil.
“We have clear signals that some emerging economies, especially in Asia, will adhere to the principles of the ceiling,” a European official told AFP news agency, adding: added that Russia was “under pressure” from its customers to lower prices.
But Russia, the world’s second-largest oil exporter, said Sunday it would not accept the cap and would not sell oil subject to it.
Deputy Prime Minister Alexander Novak said the Western move was a crude intervention that went against free trade rules and would destabilize global energy markets by causing supply shortages.
“We are working on mechanisms to ban the use of price limiters, regardless of the level set, because such interference could further destabilize the market,” he said.
“We will only sell oil and petroleum products to those countries that cooperate with us under market conditions, even if we have to reduce production a little,” he added.
Selling oil and gas to Europe has been one of Russia’s main sources of foreign currency earnings since Soviet geologists found oil and gas in the Siberian swamps in the decades following World War II.
The G7 price cap, agreed on Friday, is not much lower than the $67 a barrel of Russian oil closes at the end of the day. Therefore, the EU and G7 countries expect Russia will still have an incentive to continue selling oil at that price while accepting smaller profits.
“Russia must maintain its interest in selling its oil” or risk reducing global supply and driving prices up, a second European official told AFP, adding that it did not believe such developments. Kremlin’s threat to stop deliveries to limit-compliant countries.
The official said Russia would remain concerned about maintaining a state of infrastructure that would be damaged if production were halted and keeping the confidence of customers, including China and India.
While Russia may want to set up its own fleet of tankers, operate and insure them, Brussels believes that “building a maritime ecosystem overnight would be very complex” – and Such temporary measures can be difficult to convince customers.
The cap will be reviewed every two months by the EU and G7, with the first such review scheduled for mid-January.
“This assessment should take into account… the effectiveness of the measure, its implementation, compliance and international alignment, the potential impact on alliance members and partners, as well as the evolution of market,” the European Commission said in a statement.
The ceiling on crude oil that will be imposed by a similar measure affecting Russian oil products will take effect on February 5, although that ceiling has yet to be decided.
