Russian oil price ceiling: what to expect after December 5

Negotiations in the EU on the price ceiling for Russian oil have been postponed due to disagreements between the participants, although the decision should have been made on November 24th. After all, the ceiling itself, as previously determined, should start working from December 5th. However, European diplomats need more time to find a compromise solution, Bloomberg notes. According to Politico, the vast majority of European countries have previously agreed to set the price ceiling at $65 per barrel. However, some states considered such prices too “generous” for Russia.

Poland and Greece opposed. True, from different perspectives. Warsaw insists on a figure of $30 per barrel, and Athens – on a value of more than $70, writes Politico. Meanwhile, the range of $40-60 per barrel was initially discussed, but later the head of the US Treasury, Janet Yellen, announced her own version – $60. According to her, this will reduce Russia’s energy revenues, but at the same time ensure profitable production without hitting the global market. The ceiling price of $65-70 per barrel, proposed by the European Commission, was considered by the Baltic countries and Poland to be “too generous” for Moscow. In turn, Russian officials represented by President Vladimir Putin and Deputy Prime Minister Alexander Novak have repeatedly stated that Moscow will not supply oil to countries that have approved a price ceiling. But what is the essence of the disagreements between the participants in the negotiations, which have been going on unsuccessfully for several months now? We asked about this expert of the Financial University under the Government of the Russian Federation Igor Yushkov.

– Yes, there are disagreements, but in general, this topic does not particularly excite the Europeans, – the analyst explains. – Let me remind you that on December 5, the 6th package of EU sanctions, approved back in June, comes into force. The document contains an embargo (complete ban) on the purchase of Russian oil, which is transported by sea. Therefore, most EU countries absolutely do not care what the ceiling will be: they will not be able to import oil from the Russian Federation anyway – neither in accordance with the ceiling, nor at market prices. That is, the two types of sanctions – the embargo and the price cap – complement each other, not mutually exclusive. The ceiling concerns, first of all, maritime carriers. Therefore, Greece, with its tanker fleet, is not interested in too low a level, it will definitely lose on this. It is highly likely that the measure will lead to a reduction in oil exports from Russia. Accordingly, the shortage of supply in the world market will increase and the cost of any other oil will increase.

– In any case, Europeans will have to take it from alternative sources. It turns out, at a higher price?

– Well, yes, they only have to import oil from the USA, from the Middle East, from North Africa. And it will definitely be more expensive. The second circumstance is that companies from Greece, Cyprus and Malta are engaged not only in transportation, but also in insurance of export raw materials. The current market price of $65-70 per barrel, at which Russia sells its oil, suits them completely. If the ceiling is made exactly like this, then there will be no discrepancy, a gap between it and market quotes. Accordingly, it will be possible for these countries to make money on transportation and insurance services, as usual. But in the case of $30-40 per barrel, no way. By the way, Poland takes quite an interesting position. They themselves import Russian oil only through the Druzhba oil pipeline, and, I note, neither the embargo nor the price ceiling applies to pipeline supplies. So it’s easy for her to offer that $30. And although Warsaw, according to her, will voluntarily refuse supplies through the Druzhba from 2023, while she calmly continues to buy oil from the Russian Federation, and even made requests for volumes for the next year.

– And yet, why does Europe fail to put an end to this protracted dispute around the price ceiling – after all, the fundamental decision on its introduction was made a long time ago?

“They want to understand what risks they might face. If Russia has managed to create an alternative system of transportation (the so-called “shadow tanker fleet”) and insurance of its oil, if it has enough ships at its disposal to transport all volumes, regardless of any sanctions, then the Europeans have nothing to fear. Then they will be able to introduce any ceiling, knowing that Russia will ignore it painlessly for itself and will not reduce the volume of its exports. Accordingly, other suppliers in the world market (for example, the USA) will not raise prices. Now there is no such certainty, and this uncertainty confuses Europeans. Someone in the EU suggests doing nothing at all, so as not to provoke an increase in market prices. Other countries insist on an extremely tough approach to Russia.

Will they be able to come to an agreement in the end?

– It is very likely that the Europeans will agree on some compromise price ceiling, but at the same time will postpone its implementation for several months. Exactly this happened with the 6th package of sanctions: the document comes into force on December 5, although it was adopted on June 5. And then the EU will monitor the development of the situation on the world market. It is possible that individual countries (say, the same Greece, Malta, Cyprus) will negotiate for themselves an exception from the sanctions. That is, the ceiling will be formally accepted, but they will be able to purchase some volumes at market value. The final mechanism may contain several compromises. It takes time to discuss and accept them. Of course, some decision will be made in any case, since it was announced in Brussels. They do not intend to completely abandon the idea of ​​a price ceiling.

– Can Russia consider itself the winning side in these conditions? Or should we relax too early?

– You really shouldn’t relax. It is extremely important for Russia to create a system of independent, independent insurance. Let’s say, under state guarantees, to negotiate with the main buyers of its oil on mutually acceptable trade mechanisms. It is necessary to decide who will transport and who will insure, it can be both Asian companies and ours. The main thing is that the supplier (represented by the Russian Federation) agrees with the buyer all the conditions, then the trade will go. While the Europeans are discussing the price ceiling, we should use this transitional time to the maximum advantage for ourselves.