Russian oil stalled at $60 after G7-Australia deal

The price of oil sold by Russia to Western countries will be capped at $60 per barrel from the next few days, the EU countries, then the G7 countries and Australia, having reached an agreement on Friday, three days before the entry into force of the European embargo.

“The G7 and Australia (…) have reached a consensus on a maximum price of $60 per barrel of Russian-origin crude oil transported by sea,” the countries said in a joint press release.

US Treasury Secretary Janet Yellen welcomed the announcement in a statement that “is the culmination of months of our coalition’s efforts.” The agreement was made possible by a consensus reached earlier in the day by 27 countries of the European Union that managed to rally Poland.

EU embargo starts Monday

The finance ministers of the G7 countries agreed in early September on this instrument, designed to deprive Moscow of funds to finance its war in Ukraine.

Specifically, the price set should be high enough for Russia to be interested in continuing to sell oil to them, but lower than the price to limit the income it can get from it. The mechanism will come into effect on Monday “or very soon thereafter,” the G7 and Australia specify. Indeed, from Monday the EU embargo on Russian oil transported by sea begins.

Thus, only oil sold by Russia at or below $60 can continue deliveries. Beyond this ceiling, companies will be prohibited from providing services that enable maritime transport (freight, insurance, etc.).

Currently, the G7 countries provide insurance services for 90% of the world’s cargo, and the EU is a major player in maritime transport, which provides a strong deterrent, but also the risk of losing markets to competitors.

Russia, the world’s second-largest oil exporter, for its part, has warned that it will no longer ship oil to countries that accept the restriction.

Without this ceiling, it would be easy for him to find new buyers at the market price. The price of a barrel of Russian oil (Urals crude oil) is currently hovering around $65, barely above the European ceiling, implying limited impact in the short term.

“We will be ready to review and adjust the maximum price if necessary,” the G7 and Australia assured in their press release. And for Russian oil products, you also need to find a ceiling from February 5, 2023.

The European embargo comes into effect a few months after the US and Canada have already made a decision. But Westerners also have to deal with the interests of powerful British insurers or Greek shipowners. “The EU remains united and in solidarity with Ukraine,” the Czech Republic presiding over the EU Council said in a statement.

“We are in the unknown”

Russia has earned 67 billion euros selling oil to the EU since the start of the war in Ukraine, and its annual military budget is about 60 billion, said Phuc-Vinh Nguyen, an energy expert at the Jacques-Delores Institute. .

From Monday, the EU embargo on Russian oil transported by sea will cut two-thirds of its crude oil purchases from Russia. Germany and Poland, which have also decided to stop deliveries via the pipeline, will affect overall Russian imports by more than 90% by the end of the year, the Europeans believe.

On the other hand, “there has never been an oil price ceiling. We are in the unknown,” says Phuc-Vinh Nguyen, stressing that the reaction of OPEC countries or big buyers such as India and China will be crucial.

The only certainty, he said, is that the restriction, even at a high cost, will send a “strong political signal” to Russian President Vladimir Putin because once the mechanism is in place, it can be tightened up.