free webpage hit counter

‘Price Limit’ on Russian Oil – What Does It Mean?

Placeholder when article actions load

Since the US and its allies have decided to stop purchasing Russian oil, there is little indication that the move will cause President Vladimir Putin to press for a rethinking of the war in Ukraine. Many other countries are still buying Russian crude and the rise in prices has softened the sanctions blow by bringing in enough revenues for Moscow to stem the economic downturn. So the US is proposing a new idea: Make Russia sell its oil cheaply, it cannot wage war anymore.

1. What is proposed?

The US, UK and Canada have announced a ban on Russian oil, but the European Union bans Russian crude oil by sea in December and fuels early next year. Concerned that the world still needs Russian energy, US Treasury Secretary Janet Yellen is backing another solution to keep up with pressure on Putin: letting nations buy out of sanctions but cutting Moscow’s profits on those sales.

“The Allies are discussing price limits as part of their efforts to further curb energy revenues for Russia by preventing spillover effects on the global economy,” Yellen said on June 20. It’s not clear how they can cajole China, India and other big ones. Buyers to follow. The most obvious lever at their disposal is insurance. About 95% of the world’s oil tanker fleet is covered by the International Group of Protection and Indemnity Clubs in London, as well as some companies based in the continental Europe. European countries have already agreed to end insurance for Russian oil shipments. Western governments may try to impose a price limit by telling buyers that they can continue to use that insurance, agreeing not to pay more than the specified price for oil on board.

3. What could be the effect?

Putin says that Western countries suffer more from Russia than the economic penalties imposed on its invasion of Ukraine. Rising prices of Russian commodity exports have brought in additional revenue that has helped their government to deal with sanctions. Limiting prices at a level close to the cost of production will give Moscow’s finances a blow, but also ensure that energy flows to where it is needed. As Russia is one of the world’s largest suppliers of oil, the price cap will relieve inflationary pressures, which will cause worldwide economic hardship.

4. What are the obstacles?

Some European officials are wary of the idea because it requires the EU to reopen the legal text of its latest sanctions package, which took weeks to ratify, and to avoid significant disruptions as the bloc requires consensus among the 27 countries in the bloc. If the Allies accept the price limit but fail to hold it, it will give Putin a symbolic victory. There are plenty of ways to make it fail: there is no guarantee that Russia will agree to ship oil at capped prices, especially if the cap is close to production costs. It has already shown that it is ready to withhold the supply of natural gas to some EU countries that refuse to meet its payment demands. The Kremlin may believe that holding its oil off the market for a while will hurt Europe and North America’s economies more than its own.

5. Will big buyers of Russian oil fall in line?

The price limit can be incredibly profitable for Chinese and Indian businesses and is good for dealing with inflation. But there are wider considerations, such as Beijing and New Delhi’s long-standing relationship with Moscow. Even if attractively priced, they may be willing to take inferior Russian insurance to tell you what to pay for important goods.

6. How to also limit Russian gas prices?

European governments are discussing an Italian proposal to limit the prices of Russian natural gas imports as a way to curb inflation. The idea is gaining traction as countries increasingly look to “the only solution” to rising costs, Italian energy minister Roberto Singloni said. Gas prices in Europe have risen nearly 80% this year. However, Germany and other countries are skeptical.

More such stories are available at bloomberg.com

Leave a Reply

Your email address will not be published.

Previous post Remembering the artist Duncan Hannah, whose life flowed on generosity – ARTnews.com
Next post Sports Betting in Texas: When Is It Legalized, How to Bet Online, Where to Find Picks, Unique Promos