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On December 5, the price cap on Russian oil by Western countries came into force, and the European embargo on the supply of Russian crude oil by sea also begins to take effect. The price cap on Russian oil products will come into force on February 5.
After lengthy negotiations, the EU managed to agree on price cap for Russian oil at $ 60 per barrel. It was approved by the G7 countries, Australia and the European Union.
Disputes erupted over the position of the most Russophobic states. Warsaw insisted on setting the maximum price at $30 per barrel. In their turn, countries with a developed shipping industry, like Malta and Greece, did not agree to lower the limit below $70. About 50% of Russian oil exported by sea is transported by Greek shipowners.
The US Treasury explained that the price cap of $60 per barrel is high enough for Moscow to have an economic incentive to continue supplying fuel to world markets.
The price will be reviewed every two months in order to respond to possible “turbulence” in the oil market and assess if the measure is effective in its main goal, to reduce the financing of military operations in Ukraine.
European providers who intentionally violated the price cap will be prohibited from transportation of Russian raw materials for 90 days.
Thus, Russian suppliers will have to agree to sell oil at a price not higher than the established limit or turn to expensive services of companies outside the G7.
The EU’s decision has just come into force, but the first member country refused to take part in it. Hungary has achieved an exemption from the application of the price cap, which could become a precedent for other countries. The Hungarian Foreign Minister said that it is high time for Brussels to realize that such measures harm the European economy.
Before the sanctions were imposed, the EU, the US and the UK imported two-thirds of Russian oil and petroleum products.
In September, shipments to the EU accounted for only 24% of the total volume of sea shipments of Russian Ural oil. During the summer, India, China and Turkey increased exports of Russian crude oil by 1.2 million barrels per day, partially compensating for the reduction in supplies to Europe.
The price of $60 per barrel is acceptable for the Russian budget, as this level of oil prices is included in the draft budget law for 2023-2025. According to various experts, such a cap will not allow Russians to receive any excess income, but also does not pose any major threats to budget revenues.
In its turn, the Kremlin has previously claimed that Russia will not accept the price cap. Moscow refuses to supply energy to countries that make political decisions that contradict the terms of signed contracts.