The EU has tentatively agreed on setting the price cap on Russian oil at $60 per barrel, Reuters reported on Thursday.
The plan would also include an adjustment mechanism to keep the price cap 5% below the market value. The EU is setting the price cap at the request of the G7, which asked for the price to be slightly higher, somewhere between $65 and $70 per barrel.
The EU governments still need to formally sign off on the price cap plan, which is expected to happen on Friday. The bloc struggled to set a price as Poland was seeking a drastically lower number, around $20 to $30 per barrel.
No matter what the price is, Russia has said it will retaliate and cut off any country trying to impose price caps on its energy. If Moscow retaliates by slashing oil production, it will send global prices skyrocketing.
December 5 is the day that an EU oil embargo on Russia comes into effect, although there are exemptions for Hungary and other land-locked countries. The EU sanctions will also prohibit insurance and other services for shipments of Russian oil.
The idea of the price cap, a plan devised by US Treasury Secretary Janet Yellen, is to allow insurance for shipments of Russian oil as long as it’s sold at the set price. But shipping insurers don’t think the plan is enforceable as it would be hard to know what price the oil is actually being purchased at.
Besides the obvious issues with the plan, the US still believes it will work. “We think that the price ranges that have been discussed accomplish those two goals and will put us in a position where Russia’s revenues come down while we’re ensuring that people get access to reliable cheap energy going forward,” Deputy Treasury Secretary Wally Adeyemo said on Thursday.
Why does this look like a disaster in the making?….
Cause it is. This is more for optics than policy.
I tend to agree, and seriously doubt that any European leader actually believes Yellen’s proposal will be effective. But the people who thought that the original sanctions would be effective may not have learned anything.
There is a wild card in play. The global recession, which has largely been caused by their previous efforts to tamper with the market, will, if not addressed, drive the price of oil downward.
I have little doubt that those cheerleading for the price-cap will begin telling us that dropping oil prices prove they were right.
NATO is the elephant in the middle of the room, swinging its trunk around, hither and yon, stomping here and there. It has no limits on its behavior. Now it intends to take on China. NATO was created for a specific purpose which was achieved. But like fully-staffed, funded, and ungoverned institutions throughout time its goal is self-perpetuation and expansion.
And just when gas prices were finally coming down … hmmm, what a coincidence.
Dec 5 should be a hoot …
Russia won’t be selling any Oil to the EU
The price cap is not targeted towards sales to EU as such – the price cap applies to oil transported by western tankers and/or insured by western insurance companies as should be clear from:
The point about or the salient question is the part: ‘shipping insurers don’t think the plan is enforceable as it would be hard to know what price the oil is actually being purchased at‘, which perhaps in part can be judged by the fall in the group ‘other’ as customers of Russian oil – they have dropped off more than e.g. South Korea or Bulgaria – so the Russians have become more dependent on sales to China and India.
https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/110722-russian-oil-exports-hold-steady-in-october-despite-looming-sanctions
The real world will respond to Yellen’s plan by ignoring it. Russia will continue to find markets for its oil, and OPEC will continue to adjust it’s output in an attempt to avoid catastrophic losses similar to those experienced during COVID.
judging by the response by the western shipping agents they do not plan to ignore it, they expect it to be a problem enforcing/checking and probably a competitive disadvantage to them. Also Russian sales to others than China, India and Turkey have gone down very significantly so perhaps it will be more important to judge what will happen by the reaction of those states?
The Russians have increased exports to only India, China and Turkey among the nations not in on the price cap – so continue to find other markets seems restricted to expanding those few ones (?)
https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/110722-russian-oil-exports-hold-steady-in-october-despite-looming-sanctions
Moreover if the OPEC countries want to avoid catastrophic losses similar to those experienced during COVID then increasing the prices are not the best policy as the current slump is caused by dwindling demand as we are entering a global or near global recession – increasing prices (by limiting output) will presumably deepen the recession.
This is by design to push oil to 120-150 and save their precious Petrodollar. Since 2014, Saudis played the US game to lower price of oil by increasing output to harm Russia and Iran in revenue which ultimately backfired.
Saudis won’t play that game anymore.
You seem to be suggesting not only that the Saudis will not play that game anymore, but that they are in fact somehow behind Yellen’s plan as that is what you suggest will drive up prices – correct?
Indeed. Saudis and Yellen’s Banksters make strange bed fellow. Since bretton woods agreement, the Petrodollar is the only thing left to keep the empire alive.
It would be a fairly smart move, if they can get the Russians to curtail oil sales which would likely clog up their wells then they could get higher prices for a sustained period, but if the Russians however need the revenue and either:
1) sell to countries not willing to comply with the price cap (and there are enough of them to pick up the slack)
2) opts to continue to sell complying with the price cap
then in
case 1 prices won’t go up significantly as buyers will lower their demand for non Ural oil – prices stay about the same
case 2 prices actually end up going down
Bothe compared to what would otherwise be the case as the coming recession is going to lead to lower prices in the future if Russia does not stop exporting to any significant degree.
While Russia can do business off the books with other countries as usual, they do not get the same protection. All it would take is for few “accidents” to curb Russian tankers from doing business as usual. Their best bet right now is to commingle Qatari oil and deliver it thru Turkstream to Europe.
Gas prices may or may not spike next week. But what will happen over the long run will be the acceleration of non-NATO nations decoupling their economies from the west. They are already in the process of conducting trade in non-dollar non-euro currencies. Now they will start creating their own shipping lines and financial services. We may get a couple of years of ok results from these measures – or it will completely backfire in the short run before getting even worse in the long run.
I have been referencing on this very page how Russia’s sales of oil to ‘other’ nations have shrunk very significantly over this year, the loss of sales to them being replaced by primarily sales to just 3 nations – I know this is just one commodity but an important one for Russia, and judging by that it is not non-NATO countries that are decoupling their trade – it is possibly India and China. So do you have any other evidence than the idea that some nations have been working on a process to conduct trade in non Euro, non dollar currencies? Asking because though India has ‘authorized’ exchanges in other currencies and ‘recognizing’ the Russian credit system AFAIK their banks have cut back on using other means – as has several CSTO countries.
It ought tp be a significant business opportunity if there is a guarantee that it’ll last – otherwise the idea of:
– building what will then be excess capacity (shipping) or
– more expensive insurance (price is lower the higher the volume – so splitting the market will make it more expensive, the worst affected will be the smallest market)
is not very attractive – ship building probably being the worst area, but maybe they can rent/lease some of the excess capacity from e.g. the Greeks.
Several years ago, the US put sanctions restricting China’s ability to make high end chips. USians were crowing that it would take DECADES for China to even come close to matching what the West produces.
They must have meant years because China is already producing first generation 7 NM chips. They are already reasonably close. And they have substantially increased their production of lower tech chips.
The odds of Russia and its allies being aware of the issues you brought up is 100%. The odds of them implementing solutions in the next 5 or at most 10 years seems very high to me.
Are the Chinese though – last I heard they were not at all happy to have these sanctions imposed on them just this year and as for them breaking into the 7 nm market it seems a bit premature to claim that they can actually do so in a commercially viable way nor indeed that they can do so in a flexible way:
https://www.theregister.com/2022/08/01/column_7nm_chips_china/
Yes. A first generation 7 NM chip. Yes they still have far to go. But the chips they can make covers a very large number of applications.
The sanctions will slow them down somewhat, and as time goes on our supply chains will be completely decoupled.
Mostly – I think that this is ideal. We deal only with our partner nations, and they deal with theirs. Over time, our civilizations will just evolve differently.
Civilisation? What a novel thought? When do the Americans start?
A guy can dream, can’t he???
I kind of doubt that the Chinese want to decouple connections with the West, but you may be right or Xi may feel that they are not being given a choice.
Oh boy, I love record gas prices just so NATO can brag out how they stood up to Russia! The poorer countries who can’t afford that can just freeze to death! Oh and no problem that this genius of a plan will literally subsidize cheap Russian oil for the rest of the world who aren’t in on these insane sanctions through our own pockets. Just when inflation is coming down a little let’s go pour some neocon oil on that fire…
“Besides the obvious issues with the plan, the US still believes it will work.” That’s it. I’m only paying 60 cents per gallon of gas. Janet Yellen said it would work. …What? You disagree? Besides the obvious issues with my plan, I still believe it will work.
This deadline will most likely be postponed since EU is still sleep and will wake up on that day…!
If they mean Dec 5 of this year, that is Monday, just 3 days away.
The desperation of this move makes me think that the people that tell Biden what to do and say are getting very … anxious.
And I heard that Biden’s administration has just published proof that we have manufactured a perpetual motion machine that produces more than it uses. The only problem is that at present it only produces bullshit.
What a bunch of knobs. They were lucky Russia was selling them any oil at all. Now the silly US vassals will get none. Glad I have an EV.
EV — as they will discover in Europe, requires electriciry. And the hydro-electric production is limited, while solar and wind still are not in the league to cover the needs of industry, ait and sea transport. EV is an additional demand — a problem when even industries critical to national economy cannot operate,
There are reserves for now, but going forward — what is the solution? Nuclear? We shall see. The innovation in electric nuclear plants is almost exclusively pursued in Russia and China. In fact they have joint projects. Russia has seabased nuclear power plant that can be transported anywhere and connected to a grid. Most nuclear icebrakers can be adapted to generate electricity But Western countries do not focus in nuclear icebreakers.
France has extensive network of nuclest power plants. But it is worth examining their technoligical prowess as of late, since being acquired by multinatiinals. Profit comes ahead of investment in expensive innovation.
There may be a lots of EVs with extremely expensive electricity to contend with,
Russia will not sell to any country supporting this price cap. Standby for a big increase in oil prices!
EU tentatively agrees…. STOP RIGHT THERE!
Anything to weaken Russia I guess, without realizing it’s a global economy.