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Oil limit of G-7 Russia is unlikely to be revised anytime soon


The G-7 nations have so far decided not to modify the limit on Russian oil.

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The Group of Seven advanced economies is not expected to update the price ceiling for Russian oil in the coming weeks amid diverging views on whether the policy will actually reduce the revenue of Russia. Kremlin or not.

The G-7, along with the European Union and Australia, decided late last year to impose a $60 a barrel cap on Russian oil in an attempt to increase pressure on Moscow. As part of the deal, they said they would review the cap in mid-March.

However, despite calls to do so from some countries in Europe, the threshold was not revised last month even as oil prices fell from levels seen two months ago in mid-March. If a correction had taken place, the $60 a barrel level could have been dropped.

“The fact that the ceiling is difficult to enforce (and) monitor is, in my view, also a major reason why policymakers are not keen on it,” said Konstantinos Venetis, senior economist at TS Lombard. make adjustments – unless the price fluctuates a lot.” , told CNBC via email.

At a summit of European leaders in late March, Estonian Prime Minister Kaja Kallas said the oil cap worked and “we should get on with that.” She called on policymakers to lower the price ceiling to continue to put financial pressure on the Kremlin.

However, a spokesman for the Council of Europe, an EU organization that brings together 27 countries, told CNBC earlier this month: “It was announced that the operation of the price cap mechanism will be reviewed in the middle of the month. March 2023 and every two months thereafter. It is now April 5, which leads me to believe that the next review will take place in May.”

There are two main reasons for this. First, the G-7 seems to believe that the current cap is effective in reducing Russia’s oil revenues. Second, the oil-producing group OPEC+ unexpectedly announced a production cut on April 2, which pushed prices higher and limited the argument for a downside correction to the $60 threshold.

In addition to restricting Russian oil, the EU also banned imports of refined petroleum from Russia as part of a number of sanctions against Moscow in response to the Kremlin’s all-out invasion of Ukraine.

A spokesman for the European Commission, the EU’s executive body, told CNBC: “The EU oil ban accompanied by the G-7 oil price ceiling appears to have contributed to the drop in Urals crude prices.”

“Ural crude oil prices fell from a trading range of $65-70 a barrel at the end of November 2022 to below the $60 cap in January and February 2023.”

In order for the ceiling to be adjusted lower next month, TS Lombard’s Venetis said “global oil prices will have to fall significantly and continuously making the ceiling seem inappropriate.”

Does price cap work?

US Treasury Secretary Janet Yellen said in late February, at a G-20 meeting, that the cap on Russian oil had “had a significant negative impact on Russia so far.”

But Jacob Kirkegaard, a senior fellow at the German Marshall Fund, told CNBC there was “widespread disagreement” over whether the cap would work.

He added that while this appears to be hurting Russia’s oil revenues, it is also reducing the power that Western nations have in the insurance sector. This is because, after the sanctions, Russia tried to circumvent some of the restrictions imposed by the G-7 and other countries by amassing a fleet of older tankers.

In the end, Kirkegaard said there’s no clear way to determine whether an oil cap is effective.

India, China buy oil from Russia

The International Energy Agency said in a report last month that the measure was having an impact on Russia’s coffers. Oil export revenue fell to $11.6 billion in February, down nearly $3 billion from the previous month, as the EU, North America and OECD Asia-Oceania countries refused to buy their oil. Russia. However, other countries have increased purchases.

“Ready buyers in Asia, namely India and to a lesser extent China, have snapped up the discounted crude oil shipments, but increasing seaborne volumes suggest that The share of Russian oil in their import mix may become too large to be comfortable,” the IEA said in the same report.

The agency added: “Russia accounted for about 40% and 20% of crude oil imports of India and China respectively in February. The two countries imported more than 70% of crude oil exports of Russia in the period. last month”.

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