Being the prices that buyers pay for Russian oil, a price cap of $65-$70 per barrel against the country’s oil may not shrink its oil revenue immediately, a report said yesterday
Quoting a number of industry sources familiar with the transaction, Reuters said that considered that the figures are within the current costs per barrel of Russian crude, the price cap may be of little effect.
The primary goal of the price cap is to reduce the oil income available to the Kremlin that funds its war in Ukraine. The other key objective of the price cap is to keep Russian oil flowing by restricting maritime transportation services when the crude is being bought above a certain price cap.
The report reiterated that although no final decision has been taken by the G7 and the EU yet, but the price cap mechanism and the EU embargo on imports of Russian crude by sea would become effective in less than two weeks, on December 5.
At Wednesday, the EU reportedly discussed capping the price of Russian oil at somewhere between $65 and $70 per barrel. Such a cap, if approved, would not effectively lower the price of the flagship Russian crude currently being traded on the market.
According to two of Reuters’ sources, some Indian refiners have been paying a discount of $25-$35 for Russia’s Urals compared to Brent, which – as it stands – is currently lower than the proposed price cap of $65-$70, since Brent trades at around $85 per barrel these days.
EU ambassadors of the 27-member bloc were discussing the G7 proposal of a cap but were said to have failed to reach a decision on Wednesday as EU countries are split over whether a price cap of $65-$70 is too high or too low.
Talks are expected to continue today [Friday], but there are differences among member states, EU diplomats told Reuters today. One group of EU countries, including Russian neighbors Poland, Lithuania, and Estonia, believe the proposed price cap is too high and will still give Russia a handsome revenue from oil.
Another group of mostly southern EU members with large shipping industries – Greece, Malta, and Cyprus – have said a $65-$70 cap is too low and demand compensation for the potential loss of Russian oil trade to their shipping, according to EU diplomats who spoke to Reuters.