The G7, EU and Australia implemented on December 5 the ceiling on the price of Russian oil. Market participants doubt this measure will work.
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BRUSSELS — Price caps on Russian seaborne oil will take effect, EU ministers tell CNBC, despite efforts from the Kremlin to escape sanctions and broad market skepticism than measures.
The EU, along with the G-7 and Australia, on Friday agreed to limit Russian oil purchases to $60 a barrel as part of a concerted effort to limit Moscow’s ability to finance the war in Ukraine.
The price cap goes into effect on Monday. In essence, the measure stipulates that oil produced in Russia can only be sold with the necessary insurance approval at $60 per barrel or below $60 per barrel. Insurance companies are mainly based in the G-7 countries.
However, Russia has announced that it will not sell oil to countries that comply with the limit and is ready to cut production to maintain revenue from this item.
In addition, the reports offer that it had formed a fleet of about 100 ships to avoid oil sanctions. Having its own so-called “shadow fleet” would allow the Kremlin to sell its oil without insurance from the G-7 or other countries.
Asked if the oil cap could reduce Russia’s oil revenue, Irish Finance Minister Paschal Donohoe said: “Yes, it can.”
It was “the right message at the right time,” he said in an interview with CNBC on Monday.
One of the big questions being asked is the role of India and China in implementing this price ceiling.
Both countries increased their purchases of Russian oil after the invasion of Ukraine, and they reluctantly agreed to the cap. India’s petroleum minister said on Monday that Mr “not afraid” cap and he expects the policy to have limited impact.
However, French Finance Minister Bruno Le Maire told CNBC on Monday: “I think it’s worth a try.”
“We will then assess the consequences of implementing this oil limit,” he added.
Market players remain skeptical
The cap will be reviewed in early 2023. The revision will be made periodically and the aim is to place it “at least 5% below the average market price for Russian oil”, under the agreement reached by the EU countries last week .
European Commission President Ursula von der Leyen said over the weekend that limiting oil prices would help the bloc stabilize energy prices. The EU has been forced to dramatically reduce its dependence on Russian hydrocarbons due to the Kremlin’s war in Ukraine.
However, market participants remain wary of the policy’s integrity.
Analysts at Japan’s Mitsubishi UFJ Financial Group said in a note on Monday that the size of the price cap’s impact “remains ambiguous”. They added, “we were skeptical of the practicality of its success.”
For example, there is a risk that countries buy Russian oil at an agreed-upon ceiling but then resell it at a higher price to Europe. This means that Russia will still make money selling goods while Europe will have to pay more at a time when its economy is slowing.
Angelina Valavina, head of EMEA Commodities and Resources at Fitch Group, told CNBC’s “Street Signs Europe” on Monday: “The introduction of a price ceiling probably won’t eliminate all volume. , some will find their way to the market”. .
Oil prices traded higher on Tuesday morning in London.
Both international benchmark Brent crude oil futures and West Texas Intermediate futures traded 0.4% higher at around $83 a barrel and $77 a barrel, respectively.
Crude oil futures traded higher on Monday morning, following the decision of the OPEC+ countries to keep their output targets unchanged, but lower in afternoon trade.
