Six months after its incursion of Ukraine, the Group of Seven developed economies decided to impose an extraordinary restriction on one of the world’s top oil producers by capping the price of Russian crude oil at $60 per barrel. The limit, which was accepted by Allied powers on Friday, aims to prevent nations from spending more than $60 (£48) for a barrel of Russian crude oil that is transported by sea. The law, which is set to take effect on Monday, will increase International outrage in Russia over the assault. Ukraine argued that the Western cap must be cut in half. Russia declared that it would stop supplying to nations that enforce it.
Except if the oil is sold below $60 per barrel, the cap will prohibit Western corporations from financing, delivering, or providing insurance for Russian oil. The arrangement was created by the U.S. and its allies to reduce Moscow’s oil income while maintaining the market’s access to Russian crude, a significant source of the world’s supply. In order to limit Moscow’s capability to wage war in Ukraine, it hopes to take advantage of the consolidation of marine services in the West.
The price limit, according to US Treasury Secretary Janet Yellen, would indeed further restrain Russian President Vladimir Putin’s financial situation and “limit the revenues he’s using to fund his brutal invasion” while preventing disruptions in international supplies that could drive up gasoline prices globally. “With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into Putin’s most important source of revenue,” she stated in a report.
Officials from Russia have vowed to halt oil exports in retaliation to the restriction, claiming that the penalty disrupts trade patterns and may raise world prices. However, as of Friday, there were no indications on the markets that Russia had started to stop selling its oil on the world market.
UK Chancellor Jeremy Hunt declared that his country would not change its position and will keep seeking out new approaches to “clamp down on Putin’s funding streams.”
An EU-wide embargo on the purchase of Russian crude oil by sea goes into effect on December 5th, just days after the price cap deal is reached. It is intended to be complemented by the price cap, which will have an impact on all oil shipments globally. Only oil and petroleum products supplied at prices equal to or less than the price cap will be allowed for import by countries that agree to the G7-led strategy.
After the EU secured its agreement, the price of Brent crude, the standard for all crude oil prices, fell to about $85 per barrel on Friday. Researchers and American officials consider Russian crude, or Urals, to be impenetrable and challenging to ascertain. On Thursday, data source Refinitiv put the price of Urals at approximately $69 per barrel. Despite their claims that they may eventually drop the price, Western officials continue to argue that a cap at $60 per barrel will still reduce Russia’s revenues.
If the countries do not stick to the price limit that is set, the western partners of Ukraine proposing not to provide insurance to the vehicles delivering Russian oil it will make it harder for Russia to sell above the cap price. Although these steps would probably affect Russia, this hit will make Russia move towards the single major buyers of Russian crude oil India and China.