Agreed to cap Russian crude oil price at $60 a barrel… EU “Apply 5 days at earliest”

With the European Union (EU) agreeing to cap the price of Russian crude oil at 60 dollars (about 80,000 won) per barrel, a ‘Russian oil price ceiling’ is on track. However, after fierce debate, the agreement was highly successful, but the outlook is divided as to the impact of the sanctions.

Reuters reported on the 2nd (local time) that the EU would implement a cap on Russian oil prices at $60 per barrel from the 5th at the earliest. Seven major countries (G7), including the United States, and Australia also join the system along with the EU.

The plan was intended to limit Russian oil export revenues that could flow into the war in Ukraine. By limiting the price ceiling to a certain range, Russia was prevented from benefiting greatly from rising oil prices. The price set by the EU of $60 per barrel is lower than the current price of Russian crude oil. As of the last two days, the ESPO index, which shows the price range of Russian crude oil, recorded $73 per barrel, and the Solol index recorded $77.

However, some pointed out that the price ceiling was too high and that the effectiveness of the sanctions could be less. This is because the effect of the sanctions almost disappears when Russian crude oil falls below $60 per barrel in the face of falling oil prices. The Ural Index, another indicator of Russian crude oil prices, fell to $58 at the end of last month, and the possibility of trading at a lower price is being discussed in actual trading.

The passive setting of the price ceiling reflects the Western judgment that Russia’s crude oil supply should not be treated as too much of a blow. The purpose is to prevent supply shortages and prevent a surge in oil prices.

As a result, there was considerable debate in the EU negotiation process. Some countries, such as Poland, drew attention to the fact that the price ceiling should be lowered significantly to 20 to 30 dollars in order to ensure the effectiveness of the sanctions. The EU is said to have reached an agreement by proposing a system to review the future price ceiling every two months and to keep the price ceiling at least 5% below this level if Russian crude oil falls below $60 per barrel.

Ukraine “Insufficient”… “I will not sell oil”

Ukrainian President Volodymyr Zelensky said on the 3rd, “I cannot call it a serious decision to limit oil prices to a level that is quite comfortable for the budget of a terrorist country (Russia).”

Russia is unacceptable. “We will not accept this upper limit,” Kremlin spokesman Dmitry Peskov said. Mikhail Ulyanov, the Russian ambassador to Austria, mentioned a plan to cut off oil supplies completely, saying, “Starting this year, Europe will live without Russian oil.”

Russia is also showing a move to build a transport system that avoids the oil price cap. Countries participating in this system plan to ban maritime services such as insurance and transportation for Russian crude oil exported at prices above the upper limit in the future. The Financial Times (FT) predicted that Russia has acquired more than 100 ships this year and can use them as a ‘shadow fleet’ supplying India, China and Turkey, which are major buyers of its crude oil.

The international community pays attention to changes in oil prices following the implementation of this system. OPEC+, which includes major oil producing countries, holds a regular meeting on the 4th to decide whether to cut production. The FT said it is highly likely that OPEC+ will freeze production at the current level.