First modification:
The members of the European Union reached this Friday, December 2, an agreement to set a ceiling on the price of Russian oil as part of the reprisals against Moscow agreed with the G7 for the war against Ukraine, as confirmed by the Government of Poland.
To the veto imposed by the European Union on Russian oil, which comes into effect next Monday, a ceiling will be added to the price of hydrocarbons, measures seen by the West as a way of squeezing Russia’s finances and thus reducing its ability to finance the conflict. with Ukraine.
As of December 5, the member countries of the European Union will stop buying crude oil from this country by sea, with an estimated initial impact of 90% of current imports from that former Soviet country.
The measure excludes pipeline deliveries as part of conditions imposed by Hungary, which is landlocked and highly dependent on Russian hydrocarbons, not just oil but natural gas.
Additionally, it was agreed to impose a ceiling of at least 5% below the price that Russian oil has in the global market, that is, that European shipping companies will not be able to transport Russian oil to third countries when the price of a barrel exceeds the agreed ceiling. This price level will be reviewed every two months.
A measure with an uncertain impact for Russia
The effect of the European veto that may be generated on Russian finances is uncertain, on the one hand, because the West believes that Vladimir Putin has been able to finance the invasion of Ukraine thanks to the income that the war has already generated in ten months.
Exports of crude oil, gas and petroleum products account for the majority of Russia’s revenues, which have remained high as production disruption following Western sanctions has been more than offset by high market prices. international.
It is estimated that, for Russia, producing a barrel costs between 30 and 40 dollars and that its fiscal equilibrium point is achieved with a barrel valued between 60 and 70 dollars, below what it costs today in international markets.
Russia has also been diversifying its range of buyers. Before the Ukraine conflict began on February 24, this nation exported around 8 million barrels of oil and petroleum products per day.
The European Union, its biggest buyer, cut purchases in response to the conflict, but Moscow successfully diverted supplies to Asia and exports fell only slightly to 7.6 million barrels a day.
If sales to Asian countries such as China, India and Turkey, among others, represented two fifths of Russian exports at the beginning of this year, they are now equivalent to two thirds, according to the ‘Bloomberg’ agency.
For analysts, however, Russian oil production could fall by up to one million barrels per day in early 2023 after the ban by the European Union.
This measure could have an uncertain effect on the price of oil, since, although there will be a loss of supply, there are also fears about lower demand in a global economy in full slowdown.
Furthermore, the biggest impact of the European Union embargo may not come on Monday, but on February 5, when the additional ban on refinery products made from petroleum, such as diesel fuel, goes into effect.
with Reuters
