The cap on Russian oil: one more blow to Moscow, but far from lethal

The European Union has taken this Friday one more step in its attempt to limit Russia's economic resources to finance the war against Ukraine.

After months of sanctions on strategic sectors of Moscow, largely offset by the high sale price of hydrocarbons, the Twenty-seven have agreed to impose a cap of $60 on the maximum price at which the Eurasian giant can sell its vast reserves. oil companies

The measure constitutes a blow - one more - on the main source of foreign currency for the Vladimir Putin regime.

But it is far from definitive.

The limit on the maximum price at which Russia can sell is not so much a measure for the countries of the Union – which had already agreed not to buy more Russian crude from next Monday – but a way to reduce Moscow's profits on its sales. of crude oil to countries like China or India, which in recent months have taken advantage of the market opportunity offered by the toxicity of Russian crude oil in the West.

That this flow is maintained is essential for the West, to avoid a new earthquake in crude oil prices on a global scale: without Russian supply in the equation, there is not enough production to supply all the demand.

Although neither China nor India have seconded the European ceiling - to which the rest of the members of the G-7, the group of the seven largest powers in the world, and Australia have joined this Saturday -, the step taken this Friday by the Twenty-seven also has implications for Russian fossil exports to both countries.

The reason: many of the assemblers and insurers that participate in these shipments are based in countries that will apply the measure.

However, some market observers, such as the US investment bank JP Morgan, believe that in the future, Russia will be able to use its own ships to transport crude oil to Asia, thus circumventing the limit.

It will not be an easy undertaking:

The West oscillates between a desire to take bold steps, to deal the biggest blow to the Kremlin, and restraint, to avoid shooting itself in the foot.

In that middle ground is the agreement reached this Friday, halfway between the maximum proposals of Russia's toughest partners - with Poland in the lead, which has achieved several periodic revisions of the ceiling to ensure that there is at least one 5% below market prices— and the pragmatism of big capitals —which, led by Berlin, aspired to do as little damage as possible to the ever-complex puzzle of global energy markets.

keep flowing

The maxim that emanates from the text, which will not be fully known until Sunday, is clear: that the Russian oil that previously reached Europe continue to flow to emerging economies, but at an appraised value to prevent Moscow from continuing to obtain money with full hands. .

The bloc's own interest also plays a role in this balancing game: the more Russian crude disappears from the global market, the greater the risk that the price of this essential raw material for the functioning of their economies will skyrocket.

And with inflation showing the first signs of easing from highs, it does not seem like the best time for that to happen.

The market's first reaction seems reassuring: Brent oil, the benchmark in Europe, closed the session with a drop of slightly more than 1%.

Russia – which, with a world share of close to 10%, is the second largest crude oil exporter on the planet after Saudi Arabia – has been selling for months at a price significantly lower than the market price to try to attract new buyers, including China and India.

The reduction in oil from the Urals, as the Russian mix is ​​called, has reached around 50% compared to Brent, the reference in Europe.

This is a discount that has been essential for the Kremlin to continue placing a product that has become toxic in Western capitals since the invasion of Ukraine.

And so that the global oil market as a whole does not enter a turbulent spiral with unforeseeable consequences.

The Ural mix is ​​around 67 dollars per barrel today,

halfway between the 60 of the finally agreed ceiling and the 70 dollars originally proposed.

The push of Poland and the Baltic countries has been essential to harden that figure a little more.

Also to ensure a periodic review to verify that the mechanism is fulfilling its purpose.

A cursory look at the Russian trade balance allows us to understand why the EU and, in general, the West, have targeted fossil fuels.

Despite the fact that the volumes sold have fallen sharply since the invasion, the skyrocketing prices —especially in the case of gas— have largely offset the ax blow.

According to the latest data from the CREA study center, of an environmental nature, since last February 24, Moscow has received more than 122,000 million euros in this way: 67,000 for oil, 52,000 for natural gas and 3,000 for coal.

Until October, Russian public revenues are a third higher than in the same period of the previous year.

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