The European Union could temporarily “freeze” the price cap on Russian oil, a measure agreed years ago with the G7 countries to reduce Moscow’s economic revenues, which depend precisely on the sale of hydrocarbons. In simple terms, the “price ceiling” serves to make it more difficult for the Kremlin to finance the invasion of Ukraine, without overly restricting the availability of crude on the market. However, the war in the Persian Gulf has created a new global energy crisis and disrupted Brussels’ plans.
WHAT THE EUROPEAN UNION WILL DO ABOUT THE PRICE CAP ON RUSSIAN OIL
The European Union has adopted a dynamic mechanism that provides for an automatic update every six months of the price cap on Russian oil so that it remains at least 15 percent lower than the average value of Urals crude, the main Russian variety. The “ceiling” is currently 44.1 dollars per barrel: European companies cannot provide transportation or cargo insurance services, for example, if Russian oil is sold at a higher price.
The next update of the price cap is scheduled for July. However, considering the rise in international crude prices caused by the war on Iran – the two benchmark contracts, Brent and West Texas Intermediate, are respectively at 93 and 89 dollars per barrel – the “ceiling” on Russian oil should be around 65 dollars per barrel, a value higher than the maximum threshold of 60 dollars set in 2022 together with the G7.
As Bloomberg, which broke the news, wrote, the European Union could decide to exceptionally suspend – perhaps until the end of the year – the dynamic mechanism in order to keep the price cap within the 60-dollar threshold and prevent Russia from benefiting too much from the crude price increase.
THE 21ST SANCTIONS PACKAGE AGAINST RUSSIA
The possible “freezing” of the price cap mechanism would be part of the twenty-first European sanctions package against Russia, which should be presented shortly.
The package in question should also contain new sanctions against banks, refineries, and cryptocurrency platforms located in third countries and used by Russia to circumvent Western restrictions. Brussels could also sanction another twenty oil tankers that make up the “shadow fleet” of ships used by Moscow to move its crude. It also seems that the European Commission wants to start targeting LNG carriers as well, but without going as far as a total ban on maritime services.
Finally, it is possible that the twenty-first sanctions package will include restrictions on the trade of certain metals used by the Russian aerospace industry.
