A broad coalition of Western countries agreed last week to limit the price of Russian seaborne oil to $60 a barrel. Ukraine is convinced that the imposition of a price cap on Russian oil by Western powers will sink the economy of the world’s second-largest crude exporter. “Russia’s economy will be destroyed and Moscow will have to take responsibility for its crimes,” said presidential chief of staff Andriy Yermak. For its part, Russia responded that it will not accept the price cap and warned that it is considering how to react to a move aimed at limiting a key source of funding for its war in Ukraine.
A broad coalition of Western countries agreed on Friday to cap the price of Russian seaborne oil at $60 a barrel. Russia says it will continue to find buyers for its oil while saying several times that it will not supply oil to countries that implement the cap. This position was reaffirmed by Mikhail Ulyanov, Russia’s ambassador to international organisations in Vienna: “From this year onwards, Europe will live without Russian oil”.
Once again, Moscow hopes to convince anyone that measures to damage the Russian economy will have pernicious effects for everyone: “Steps like these will inevitably result in greater uncertainty and impose higher costs for consumers of raw materials”. “Regardless of the current flirtations with this dangerous and illegitimate instrument, we are confident that Russian oil will continue to be in demand.”
The European cap has been joined by the other G-7 members and Australia. But neither China nor India, although it will also indirectly affect Russian business with these two partners. Why? Because, in many cases, the ships (and also the insurers) that make these supplies possible have their port, base or headquarters in countries that do apply the punishment. According to the Financial Times, Russia is creating a “shadow fleet” of old tankers to export crude oil after the introduction of a price cap. It has therefore bought more than 100 ships equipped to transport oil from the beginning of 2022. These are 12 or even 15-year-old vessels, acquired – discreetly – to circumvent the sanctions.
Russia’s energy ‘containment’ measures are delicate at a time of war, inflation and energy crisis that requires boldness but also balance. The aim is to make Russia less money, but without causing an earthquake that will send fuel prices soaring across the board. And, if possible, to get less Russian oil on the world market, which today is both a necessary and a toxic asset.
Countries for which Russia is an existential threat – first and foremost Ukraine, but also Poland or the Baltics – have always opted for a tougher and riskier approach. Zelenski’s chief of staff believes that Russia’s oil price cap should be reduced to 30 dollars a barrel. From within the EU, Poland and the Baltics pushed for it to be at least lowered from an initial 70 to the current 60, and also for it to be reviewed periodically to make sure it is an effective cap and not a symbolic one.
Russia’s barrel is now around $67 a barrel, so the cap would already affect its revenues. And it’s raining on their parade: Russia has been selling oil at around 50 per cent of Brent for months. This has been Russia’s way of attracting new customers in the face of the European rebuff.
Currently, Russia is compensating for the drop in sales volume with higher prices. But its situation may worsen now and even more so in February, when the EU embargo on maritime supplies of Russian oil products comes into force.