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How the embargo and the cap on the price of the oil tanker sow uncertainty in the Russian economy

The European embargo on Russian oil supplied by sea and the western cap on its price that came into force today sow uncertainty in the economy of Russiahighly dependent on the income generated by this hydrocarbon, although Moscow hopes to redirect the released volumes to Asia.

The eyes of Russia They are mainly placed in China and India, but according to the expert in the Russian oil and gas sector Mikhail Krutikhin, these two countries are not in a position to increase their crude oil imports from Russia.

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“Because of transportation problems, China cannot buy more oil than you currently buy. India is being pressured by the US and OPEC. Iraq offers you discounts and I don’t think India can absorb those volumes.”he told EFE.

And it is that by the end of the year the embargo will affect 90% of the volume of European imports of Russian oil prior to the start of Russia’s military campaign, that is, about 100 million tons or 730 million barrels, according to the president of the European Commission (EC), Ursula von der Leyen.


According to Krutijin, the impact of this sanction will not be felt for several months on Russia’s finances, whose main source of income, 38%, is the export of hydrocarbons, particularly crude oil.

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The expert highlighted that the measure -aimed at reducing the capacity of Russia to finance the war intervention in Ukraine– that it will have an immediate effect on the national industry will be the European embargo on the import of Russian oil derivatives, which will enter into force on February 5th.

“Many refineries in the country work exclusively for export, so in March they will have to suspend the purchase of crude oil”explained the expert.

He added that oil companies will be forced to reduce extractions, since Russia does not have the capacity to store reserves.


Added to the embargo, also today, the European Union’s veto, agreed with the G7 countries and Australia, on the transport of Russian oil sold at a price above $60 a barrel to any country in the world.

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The measure prohibits European operators from offering insurance and reinsurance, intermediation or other financial services to all shipping companies that transport Russian crude above that cap.

The measure includes a review mechanism every two months that will allow the 60 dollars to be adjusted downward if the price of oil in international markets falls below that figure.


According to the President of Ukraine, Volodymyr Zelensky, in order to deal a real blow to the Russian economy, the maximum price of Russian crude should not, however, exceed 30 dollars.

“The decision to impose an absolutely comfortable restriction for Russia’s budget cannot be considered serious,” said the Ukrainian president.

He meant that the budget of Russia for the next year it is calculated with an average price of the Urals of 42 dollars.

Zelensky He stressed that the established limit shows a “weak position” of the West and that “it will only be a matter of time when more powerful instruments will have to be used.”

Krutijin agrees with him. “We see Russian oil trading in the Baltic region at $52-$59 a barrel, in the Mediterranean around $60. In other words, I don’t see any logic in introducing a maximum price in that range”.

In the decision to establish this cap, the interests of the large European shipping companies and the fears that a lower one would trigger crude oil prices weighed.

According to the US, the real price at which Russian oil is traded is higher than 60 dollars per barrel, a difference that it attributes to the opacity of the market.

Western media have pointed to the possibility of Russia evading controls through “ghost tankers”, with their transponders turned off, and through transfers of crude oil on the high seas. Others, such as the Financial Times, claim that Moscow is already creating “a shadow fleet” with the acquisition of more than 100 old ships.


Russia warned today that it does not admit any cap on the price of its oil and that it is preparing a response.

“We are not going to recognize any ceiling”the Kremlin spokesman said today, Dmitry Peskovwho warned that restrictive measures such as these will only lead to the destabilization of the world energy market and will not affect the financing of the war intervention in Ukraine.

The President of Russia, Vladimir Putinhas warned that Moscow will not export oil to countries that abide by the ceiling agreed by the EU and the G7, even if this means lost revenue.

“We will sell oil and crude oil derivatives only to countries that work with us according to the laws of the market, even if we are forced to reduce extractions somewhat,” emphasized Russian Deputy Prime Minister Alexander Novak.

Source: Elcomercio

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