Looking for the oil cap… not the one for your car. EU countries have been struggling to agree on a price cap for Russian oil. Refresher: back in June, the 27 EU nations agreed to ban purchases of Russian oil starting on December 5. The goal was to slash Russia’s oil revenues, which are fueling its war on Ukraine. But the oil-ban plan was scrapped over concerns it would send global crude prices soaring, since Russia is a top exporter. Now:
- The US is pressuring the EU to agree on a cap, which would set a max purchasing price on Russian oil, meaning G-7 countries would end up buying it at a lower price (still hurting Russia’s coffers, but not as much as a ban).
- This week, a proposal suggested a $62/barrel limit. But Poland, Estonia, and Lithuania knocked it down, arguing it was too high to dent Russia’s income.
- Yesterday, EU governments reportedly agreed to a $60 cap, with a provision to adjust it to 5% below the current market price. But it needs to be formally approved.
Cap it off… The cap would make it really hard for Russia to sell oil at a higher price, since the world’s key shipping and insurance companies are headquartered in G7 countries — which could block those companies from handling Russian crude shipments if they violate the cap. But it’s not as simple as that:
- No cap: Russia has repeatedly said it won’t sell oil to countries who implement a price cap. That could wreak havoc on global supply and spike prices.
- Wild card: The cap can be successful only if China and India agree to support it, since they buy the bulk of Russian oil.
“Sideline players” can hold frontline sway… China and India boosted their purchases of Russian oil after Russia’s invasion of Ukraine, and have benefited from lower prices. If they keep loading up on Russian oil, it’s unlikely that the G-7 cap would really hurt Russia. And it doesn’t seem like they’ll support it. This September quote from India’s petroleum minister isn’t encouraging: “We will buy oil from Russia, we will buy from wherever.”