EU approves proposed limit of $60 per barrel of Russian oil

European Union (EU) countries have agreed to cap Russian oil prices at $60 a barrel as part of sanctions aimed at preventing fuel price spikes and hurting Moscow’s interests.

After several rounds of last-minute negotiations, the Czech EU Presidency announced on Twitter that “the ambassadors have just reached an agreement on a maximum price for Russian offshore oil”, it remains only for this decision to be approved in writing.

Europe needed to set a discounted price, which several countries had to pay by Monday, when the EU embargo on Russian oil shipped by sea and the ban on insurance of such goods came into force.

The price ceiling set by the G7, the group of the richest seven democracies, still needs to be approved, but all indications are that it will avoid a sudden loss of Russian oil without abandoning the imposition of sanctions against Moscow due to the invasion of Ukraine.

Insisting on keeping the limit at lower values, Poland eventually relented and approved the proposal, which was supported by several countries.

“At the heart of this decision is the hacking of Russia’s energy revenues so that the Russian war machine can be stopped,” Estonian Prime Minister Kaja Kallas said, adding that she was pleased that the cap had been lowered from the original proposal. .

The value of $60 (about 57 euros) per barrel sets a limit close to the current price of crude oil from Russia, which has recently fallen below this value.

Some countries believe that this figure is too high to really affect Russia’s energy revenues, but acknowledge that it already represents a significant discount from $87 per barrel of Brent.

However, the global market will be hit by a drop in Russian oil as Europe braces for a major energy crisis next winter as several governments face protests against rising costs of living.

Oil and natural gas prices soared after demand rebounded from the effects of the COVID-19 pandemic, largely due to the Russian invasion of Ukraine that began in February and destabilized energy markets.

In the face of Western sanctions against Moscow, Russian President Vladimir Putin announced that he would not sell oil at set prices and that he would retaliate against countries that imposed the measure.

However, Russia has already diverted most of its supplies to India, China and other Asian countries at discounted prices to offset reduced purchases from Europe.

Russia may also still be selling oil by controlling sanctions, by using “black fleet” tankers whose flags are not identified, or by transferring oil between ships, mixing it with oil from other sources to hide its origin.

But even so, the restrictions imposed on Moscow make it “more expensive, time-consuming and difficult” for Russia to sell oil, said Maria Shagina, an economic sanctions expert at the International Institute for Strategic Studies in Berlin.

On the US side, the White House has already welcomed this decision, believing that it will cause serious damage to Moscow’s military interests.

“We continue to believe that the price cap will help limit the ability of (Vladimir) Putin (President of Russia) to use the oil market to continue funding the military operations that continue to kill innocent Ukrainians,” the speaker said. US National Security Council, John Kirby.

However, from the other side of the Atlantic, there are critical voices in assessing this decision of Brussels.

Robin Brooks, chief economist at the Institute of International Finance in Washington, says the price cap should have been applied when oil hovered around $120 a barrel this summer.

A number of other analysts criticize the measure, backed by the White House and current US Treasury Secretary Janet Yellen, as well as her predecessor in this post, Steve Mnuchin, who considers the idea “not only unworkable, but even ridiculous.” given that it would not be effective because it would not cause much damage to Moscow’s war effort.