The European Union may impose a ceiling on the price of Russian oil

The EU may impose a marginal price on imported Russian oil to cut Russia’s revenues, the Financial Times (FT) reported, citing its own source.

Such a measure is being considered in the preparation of the next (sixth) package of sanctions against Russia due to a special military operation in Ukraine. Valdis Dombrovskis, vice-president of the European Commission, said on April 25 that the sixth package of anti-Russian sanctions could include restrictions on Russian oil imports.

The proposal arose against the background of the impossibility of imposing a total ban on oil supplies from Russia, writes FT. According to analysts interviewed by the publication, an alternative could be the introduction of an import duty on Russian oil, which will force Russia to reduce prices to maintain competitive supply.

There is no consensus on this issue yet. According to the FT, citing an unnamed high-ranking German official, setting a marginal price is a breach of contract. Another German official noted that the idea of ​​a cap on the price of Russian oil in Germany “is not taken seriously.” Instead, Germany has focused on phasing out Russian oil.

On March 21, EU High Representative for Foreign Affairs and Security Policy Josep Borrell said the EU could ban Russian oil imports due to a special military operation in Ukraine. According to him, the initiative to abandon Russian energy sources was studied by EU foreign ministers. According to Reuters sources, the Baltic states, in particular Lithuania, are in favor of banning supplies. At the same time, Germany warns other EU countries against making quick decisions, given high energy prices.

The US and Britain have already imposed embargoes on Russian energy supplies. Imports of Russian oil, gas and other energy to the United States ceased after the signing of a decree by President Joseph Biden on March 8, 2022. London intends to stop buying oil from Russia by the end of 2022.

Despite the lack of a unified EU position, European consumers and traders have begun to refuse to buy Russian oil. On March 8, the Anglo-Dutch company Shell and the British BP spoke about the refusal to buy oil from Russia, and on April 13, the Swiss-Dutch trader Vitol. Against this background, the discount in the price of Russian Urals oil to the reference brand Brent was $ 20-30 per barrel.

But Shell has already found a way to circumvent restrictions on Russian oil supplies. According to Bloomberg, the company has resorted to mixing different types of oil, the Russian Urals account for less than 50% of the mixture, which allows us to consider non-Russian oil (“Vedomosti” wrote about it on April 8).

In mid-April, Russian Deputy Prime Minister Alexander Novak noted that it would not be possible to replace Russian oil on the world market in the next 5-10 years. The share of oil supplies to the EU from Russia reaches 30%, Novak said. Dmitry Peskov, a spokesman for the Russian president, said earlier that if the EU gave up Russian oil altogether, it could be diverted to other markets, including Asia.

If the EU introduces a ceiling on Russian oil prices, the reorientation of Russian supplies to alternative markets will accelerate, which will lead to an additional sharp rise in prices in Europe, said Vasily Tanurkov, director of ACRA’s corporate ratings group. The main costs will be passed on to the European consumer, the expert said. In the case of tariffs, a significant part of the costs for Russia will be offset by rising prices, he added. Due to its proximity to the European market, Russian oil is the most competitive, the expert emphasizes.

According to the ICE exchange, on April 26 the nearest June Brent futures cost $ 101-104 per barrel. According to the Russian Ministry of Finance, the average price of Russian Urals oil for the period from March 15 to April 14 was $ 79.81 per barrel.

Russian oil supplies to Europe will continue, but will face not only the EU’s decision on tariffs or price caps, but also logistical problems – European countries refuse to accept Russian oil in their ports, said personal broker BCS World of Investment Jan Melnichuk. The EU has set a course to reduce dependence on oil from Russia, so work on redirecting oil flows has already begun, and it’s only a matter of time, says the expert. He reminds that Russian President Vladimir Putin has instructed to accelerate the reorientation of oil and gas exports. We are talking about the implementation of infrastructure projects: railway, pipeline, port, which, according to the President, “in the coming years will redirect oil and gas supplies from the West to promising markets – south and east.”

“Europe’s desire to squeeze Russian oil out of its market will soon face the same logistical reality that is now obvious to the European gas market. At present, Russian energy sources cannot be replaced and the announced restrictions will be eased in the coming weeks and months, ”Melnichuk said. The European Commission has already acknowledged that energy dependence on Russia will be at least until 2027, he reminds.

It is extremely difficult to give up Russian oil in the EU, agrees Vasily Tanurkov. Despite all the restrictions, Russian oil supplies to Europe rose to 1.6 million bpd in April from 1.3 million bpd in March, he said.

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