Tuesday, December 6, 2022

The EU embargo on Russian oil and the G7 price cap go into effect

EU embargo of Russian oil, G7 price cap take effect

 MOSCOW: On Monday, the United States of America and Europe began enforcing two of the most stringent measures aimed at reducing Russia's oil income, the primary source of cash used to fund its nearly 10-month-old war in Ukraine. The first, a price cap initiative led by the US, aims to avoid a global oil shock while increasing economic pressure on the Kremlin. The G7 nations, Australia, and the EU all endorsed the limit, which was set at $60 per barrel. The second is an embargo that will stop European nations from purchasing the majority of Russian crude beginning on Monday. The EU had agreed to this step months ago, but it was implemented gradually to prepare its members.

Due to the fact that the price cap will primarily affect large Russian oil customers like India and China, analysts and traders are skeptical about how well it will work. As the EU embargo takes hold, American officials have argued that they are attempting to avoid a sudden contraction of supply and the subsequent price spike in gasoline and heating oil. Russia has stated that it will not accept a price cap and has threatened to stop providing supplies to nations that adhere to the arrangement. According to analysts, Russia has been constructing a so-called "shadow fleet" of old tankers in order to export its oil and evade sanctions, but it is doubtful that it can form a sufficient flotilla. Russia may need to start shutting down wells if it is unable to do so.

OPEC and its allies, including Russia, stated on Sunday that they would maintain their quotas for oil production despite the impending embargo and price cap. Early on Monday, Brent crude, the international benchmark, was around $87 per barrel, below the $90 that many analysts believe Saudi Arabia wants.

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