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Hit to Russian crude

2022-12-06T11:09:37.363Z


The limitation of the export price of Russian oil to third countries seeks to reduce the income that feeds its war machine against Ukraine


Western countries took a significant step on Monday to try to stifle the income with which the Kremlin finances the war in Ukraine.

The members of the G-7, the EU and Australia yesterday activated their mechanism to limit the maximum price of Russian crude oil exports to third countries, set at 60 dollars per barrel.

The measure seeks a very complex balance: a reduction in Moscow's income without causing a collapse in supply that triggers prices in the global market.

The designed system tries to take advantage of the pre-eminence of Western companies in the maritime transport, insurance and financing sectors to force third parties to respect the established limit.

The cap was agreed at the end of last week, but it begins to work the same day that the Twenty-seven have launched their total disconnection of Russian crude oil imports through maritime transport, agreed months ago.

Although countries like the US or the UK, which are less dependent on Russia than the EU as a whole, had already implemented the measure, in October the EU still imported 1.5 million barrels per day from Russia.

They are a million fewer than before the war, but still a significant part of the Kremlin's 7.7 million daily exports.

The result of this set of measures is difficult to foresee, as evidenced by the decision of OPEC+ (an expanded version of the traditional group of producers that includes Russia) to postpone its reaction.

It will undoubtedly be difficult for Russia to relocate the crude oil that the EU will stop importing, and manage to sell that and the rest bypassing the price limit.

Western companies dominate the market in the shipping, insurance and financing sectors linked to this type of operation.

Those who want to have them will have to respect the cap, but Russia has already announced that it will not trade with those who intend to do so.

Industry experts consider that Russia has already increased the tanker fleet, but that it will not be easy for it to compensate for the entire loss caused by the new mechanism.

Time will tell what the result will be, but overall the export price cap looks like a step in the right direction.

The sanctions already applied against Russia have caused significant damage to the Russian economy, but not a collapse, as shown by the strength of the ruble, or that Moscow's oil revenues in October amounted to 17.3 billion dollars, a figure higher than the monthly average of 2021. The Kremlin encourages an increasingly brutal escalation of its war in Ukraine, punishing the civilian population.

Democratic countries must respond, and one way is to make Vladimir Putin run out of funds to finance his offensive.

It will be necessary to observe the operation of the new mechanism, if necessary modify the ceiling price and improve the effectiveness of its global projection.

But, from the outset,

Source: elparis

All news articles on 2022-12-06

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