Western governments are aiming to cap the price of Russia’s oil exports in an attempt to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine. Know more:
FRANKFURT, Germany—Western governments are aiming to cap the price of Russia’s oil exports in an attempt to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine.
Here are basic facts about the price cap, the EU embargo and what they could mean for consumers and the global economy:US Treasury Secretary Janet Yellen has proposed the cap with other Group of 7 allies as a way to limit Russia’s earnings while keeping Russian oil flowing to the global economy. The aim is to hurt Moscow’s finances while avoiding a sharp oil price spike if Russia’s oil is suddenly taken off the global market.
One purpose of the cap is to provide a legal framework “to allow the flow of Russian oil to continue and to reduce the windfall revenue for Russia at the same time,” said Claudio Galimberti, a senior vice president of analysis at Rystad Energy. However, that $50 cap would still be above Russia’s cost of production of between $30 and $40 per barrel, giving Moscow an incentive to keep selling oil simply to avoid having to cap wells that can be hard to restart.Russia has said it will not observe a cap and will halt deliveries to countries that do. A lower cap of around $50 could be more likely to provoke that response, or Russia could halt the last of its remaining natural gas supplies to Europe.
“China and India get Russia’s crude at a huge discount to Brent, therefore, they don’t necessarily need a price cap to continue to enjoy a discount,” he said. “By complying with the cap set by the G-7, they risk alienating Russia. As a result, we do believe that the compliance with the price cap would not be high.”
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