The G7 also puts a cap of $60 on a barrel of Russian oil. This cap will be applied by all members of the Price Cap Coalition –G7, EU, Australia…– through their respective national legal processes starting this Monday.
OPEC and Russia decide to maintain the cut in their oil supplyRELATED
While the EU ban on importing Russian seaborne crude oil and petroleum products remains in effect as of Monday, “the price cap will allow European operators to transport Russian oil to third countries, as long as its price is kept strictly below the limit”, says the European Commission.
Ursula von der Leyen, President of the European Commission, said: “The G7 and all EU Member States have made a decision that will further affect Russia’s revenues and reduce its ability to wage war in Ukraine. It will also help us stabilize global energy prices, which will benefit countries around the world currently facing high oil prices.”
The price cap is designed “to further reduce Russia’s revenues while keeping global energy markets stable. It will therefore also help to tackle inflation and keep energy costs stable at a time when high costs, in particular high fuel prices, are a major concern in the EU and around the world.” says the European Commission.
The price cap will take effect on December 5, 2022 for crude oil and on February 5, 2023 for refined petroleum products.
It will be effective simultaneously in all jurisdictions of the Price Cap Coalition. The cap also provides for a transition: it will not apply to oil purchased above the price cap before December 5 and unloaded before January 19, 2023.
For its part, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, which together form the group known as OPEC+, have decided this Sunday to continue applying in 2023 the sharp cut in oil production agreed two years ago. months.
In a statement, the energy and oil ministers of the 23 alliance countries have reaffirmed that the reduction of their joint pumping by 2 million barrels per day (mbd), agreed on October 5, is the “necessary” measure and “correct”.
That day, the ministers of the countries that make up this cartel confirmed the decision to jointly pump a total of 41.856 million barrels per day, compared to 43.856 million in August. 25,416 million by OPEC, compared to the previous 26,689 million, while countries outside the organization will produce 16,440 million.
What does the oil price cap pursue?
The price cap, which comes on top of the EU’s import ban on Russian crude and seaborne petroleum products, and bans on other G7 partners, “will further reduce Russia’s oil revenues.” ”, says Brussels.
The oil price ceiling –60 dollars per barrel of crude– “will also serve to stabilize world energy prices that Moscow’s illegal war against Ukraine has inflated”, says Brussels: “It will help to deal with inflation and keep stable energy costs at a time when high costs, in particular high fuel prices, are a major concern for all Europeans.
How has the ceiling been set?
It has been established by the 27 and agreed to by the International Price Cap Coalition. The cap has been unanimously approved by the Council of the EU. Any subsequent change would require the same procedure, ie a Council Decision and a Commission Implementing Act.
Is the cap immovable?
No. The price limit is fixed for now but adjustable over time. Once the initial cap has been set, the price may be changed in the future to reflect market developments and technical changes. This review should take into account several factors, which may include the effectiveness of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments.
What kind of exceptions have been agreed?
The cap does not affect the EU’s total import ban on Russian crude and oil products, and specific exceptions and derogations that have already been agreed in previous sanctions packages. These exceptions and exemptions allow certain Member States to continue to import crude oil and petroleum products from Russia due to their specific situation, or to import crude oil transported by sea from Russia if the pipeline supply of crude oil from Russia is interrupted for reasons that They are out of your control.
Specific projects that are essential for the energy security of certain third countries may be exempted from the maximum price.
Are transition periods foreseen for the transport of Russian oil?
The cap enters into force on December 5, 2022 for crude oil and on February 5, 2023 for petroleum products – the price of refined products will be defined in due course. There is a 45-day settlement period for Russian seaborne crude purchased above the cap, provided it is loaded onto a vessel at the port of loading by December 5, 2022, and unloaded at the final port of destination before on January 19, 2023. During this period, services related to maritime transport can be provided.
Once the initial price cap has been established, the Price Cap Coalition may modify the price.
What happens if a boat does not respect the maximum price?
If a third-country flagged vessel intentionally transports Russian oil above the cap price, EU operators will be prohibited from insuring, financing and servicing this vessel for the carriage of Russian oil or petroleum products for 90 days after that the cargo has been purchased above the ceiling price. Discharged
If an EU vessel, or an EU flagged vessel, breaches the maximum price, it will be subject to the consequences that derive from the national legislation of each Member State.
Which countries have accepted this cap on the price of oil?
G7 members and other participating countries (Price Cap Coalition), such as Australia.
What about the risk of circumvention? Will the shipping companies change their flag?
EU sanctions apply within the jurisdiction (territory) of the EU to EU citizens anywhere, to companies and organizations incorporated under the law of a Member State, including branches of EU companies in third countries, as well as on board aircraft or ships under the jurisdiction of Member States.
The ban on transporting oil by sea applies to all EU vessels, i.e. EU-flagged vessels, and also to vessels owned, chartered or operated by EU companies or nationals . This would also cover agents acting on your behalf. The EU refrains from adopting sanctions of extraterritorial application in contravention of international law. For the oil price cap, the G7 is inviting all countries to join the Price Cap Coalition.
If they agree to join, it means they agree to buy oil at or below the maximum price. This will allow them to benefit from transport and other related services (insurance and financing) provided by EU operators.
If they do not join the Coalition, which means they buy the oil above the ceiling price, the EU operators will not be able to transport that oil to those countries, nor provide them with financing or insurance.
The goal of the cap is therefore twofold: to keep Russian oil flowing cheaply on global markets and to reduce Russia’s revenue so it can wage war.
“With the price cap, there are clear incentives for Russia, oil-importing countries and market participants to keep Russian oil flowing. This will achieve both objectives at the same time”, says Brussels.
“The US, the EU and other G7 countries have already committed to phase out imports of Russian oil. Instead, the cap price allows our service providers to support shipments of Russian oil to other countries, if purchased below the cap price. This means that the main beneficiaries of this lower-priced oil will be third countries, including developing countries in Africa, Asia and Latin America, which in turn contributes to the stability of the world market.
Does this imply a weakening of EU sanctions?
“No”, says the Community Executive: “The price cap does not change our ban on oil imports from the EU. It is about modifying the EU sanctions (the ban on maritime services) to allow the provision of these services under the strict condition that Russian oil is bought below the ceiling. Transportation services above the cap remain sanctioned. This amendment will actually help strengthen the overall impact of global sanctions against Russia by creating incentives for a coalition of third countries to trade at or below the limit, which will push prices down and reduce Russia’s revenue. ”.
What does this mean for the maritime industries of certain Member States?
The total EU import ban on Russian crude and refined oil products, already agreed by the Council in June, remains unaffected, so nothing changes for Member States.
As far as shipping services and shipping by Member State suppliers covering Russian oil are concerned, there is no impact as long as the operations in question remain at or below the set cap.
The European Commission will continuously monitor the possible broader economic impact in the Member States and, together with its allies, will continue to strive to build as wide a price cap coalition as possible to make this system as effective as possible.
What is the rationale for imposing such sanctions?
“The sanctions are directed at the Kremlin. Their objective is to weaken the ability of the Russian government to finance its aggression against Ukraine and they are calibrated to minimize the negative consequences on the Russian population”, maintains the European Commission: “The sanctions impose a direct cost on Russia for its aggressive war and damage Russia’s industrial and economic ability to wage war, make more weapons, and repair existing weapons systems. The sanctions also deprive the Russian military and its suppliers of the goods and equipment necessary to wage their war on the sovereign territory of Ukraine.”
“In addition”, says Brussels, “the sanctions are designed to maximize the negative impact for the Russian economy, while limiting the consequences for EU companies and citizens. Ensuring effective and diligent implementation of sanctions is key to preventing circumvention. This is mainly the responsibility of the Member States. In this process, the European Commission is fully committed to assisting them and ensuring consistent implementation across the Union.”