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An oil price against Putin


In order to weaken Vladimir Putin's wartime economy, the western community of states has agreed on a price cap for Russian oil. However, there are doubts that the plan will work.

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Wladimir Putin

Photo: IMAGO/Alexander Shcherbak / IMAGO/ITAR-TASS

The European Union, the USA and the G7 countries have agreed on a global price cap for Russian oil.

According to sources familiar with the negotiations, the raw material will only be allowed to be shipped for a maximum of 65 to 70 dollars per barrel.

The price cap is to take effect from the beginning of December, at the same time as the EU embargo on Russian oil that has already been decided comes into force.

The aim of the agreement is to reduce Russian income from oil sales.

During the summer months, the price was at times over $100 a barrel.

This resulted in billions in surpluses in Moscow's state budget, which Vladimir Putin could use to finance his war of aggression against Ukraine.

A price of 65 to 70 dollars should now significantly reduce Russian profits, so hope the chief negotiators in the western capitals.

At the same time, Russian oil would continue to flow onto world markets, preventing shortages and unexpected price jumps.

The oil price is currently around 70 dollars per barrel. Experts estimate the production costs in Russia at around 35 to 40 dollars.

If the company disregards the requirement, there are penalties

In order to enforce the price cap, the group of states wants to impose it on insurance, shipping and financial market companies that are active in oil trading.

The companies, most of which are based in Western countries, are only allowed to transport Russian oil if the oil price is below the agreed upper limit.

If they disregard the conditions, there are penalties.

The agreement was preceded by weeks of negotiations between the G7 and EU countries.

While Ukraine's Eastern European neighbors such as Poland, Lithuania and Latvia pushed for the lowest possible prices, countries such as Greece, Malta and Cyprus advocated significantly higher values.

The reason: numerous shipping and transport companies are based in your countries.

Many industry experts doubt whether the group of states, which also includes countries such as Australia and South Korea, can actually enforce the price limit.

Oil transports destined for countries such as India or China are considered to be particularly problematic.

The situation on the oil markets is currently considered relaxed because global demand is suffering from the corona lockdowns in China.

If the economy picks up, experts fear that the price limit will be difficult to maintain.

At the beginning of next week, according to reports, the maximum price will be finally fixed.

Source: spiegel

All business articles on 2022-11-26

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