Economist analyses: – ‘Oil price ceiling will hit Russia hard’

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After long and difficult negotiations, the EU countries have agreed on a price cap for Russian oil, the G7 and Australia have joined. According to energy economist Claudia Kemfert of the German Institute for Economic Research (DIW), this would hit the Russian war chest quite badly. “Russia will be hit hard, the revenues will not be so abundant anymore,” she said on Saturday.

According to Kemfert, one should not forget: “Russia has now made huge sums of money this year from high prices for fossil energy in general, including oil.” The only question is “whether it works as designed and how the global market ultimately reacted”.

The West can transport Russian oil to third countries
To enforce the price cap, it should be regulated that important services for Russian oil exports may in future only be provided with impunity if the price of the exported oil does not exceed the price cap. Western shipping companies could use their ships to continue shipping Russian oil to third countries such as India. The regulation should also apply to other important services such as insurance, technical assistance, financing and brokerage services.

US Treasury Secretary Janet Yellen hailed the price cap as the result of months of efforts by the states involved. “Together, the G7, the European Union and Australia have now placed a price cap on Russian oil that will help us achieve our goal of limiting Putin’s primary source of revenue from his illegal war in Ukraine, while preserving global energy stability.” said, referring to Russian President Vladimir Putin.

Price cap of $60 per barrel
The agreement reached on Friday provides for an initial price cap of USD 60 per barrel. The price of about 57 euros per 159 liters would then be up to 9 euros below the most recent market price for crude oil from the Russian Urals. According to the plans, it will apply from Monday. The G7 includes the US, Canada, France, Germany, UK, Italy and Japan. Germany currently chairs the group.

Kiev wants lower price for Russian oil
Ukraine has called the $60 per barrel price cap for Russian oil set by the EU, the G7 and Australia too high. In order to “destroy” the economy of the Russian enemy more quickly, it is necessary to lower the price to $ 30, the head of the Ukrainian presidential bureau Andriy Yermak said on Saturday. At the same time, he welcomed the move. Russia sees this as a violation of free market laws.

Putin spokesman: ‘Does not accept oil price ceiling’
On the other hand, warnings and criticism came from Russia. This is seen as a violation of free market laws. “We will not accept this limit,” President Vladimir Putin’s spokesman Dmitry Peskov said, according to the Tass agency. Russia is prepared for the price cap, will now quickly analyze the situation and then comment on concrete steps.

Restrictions will apply from December 5
The price cap is intended to complement the oil embargo against Russia decided by the EU in June. This includes a ban on the purchase, import or shipment of crude oil and certain petroleum products from Russia to the EU. The restrictions will apply from December 5 for crude oil and from February 5, 2023 for other petroleum products. However, there are some exceptions, for example for Hungary.

Member States had taken a decision in principle to introduce the price cap for Russian oil in October – after the G7 had previously launched a similar initiative.

Source: Krone

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