EU aims to inflict more pain on Russia with second oil price cap – POLITICO

The EU and its wealthy country allies are again targeting Russia’s ability to take advantage of its vast oil reserves by limiting the price of Moscow’s refined petroleum products.

The bloc is proposing that G7 allies cap the price of Russian diesel at $100 a barrel and set a separate cap of $45 for other cheaper petroleum products. The EU wants to introduce the measure on February 5, when its embargo on the purchase of Russian petroleum products comes into effect. The news was first reported by Bloomberg.

This is the second round of Russian oil price caps; the EU, the G7 and Australia agreed last month to impose a price cap on Moscow’s crude sales in conjunction with an EU embargo on its member countries (except Bulgaria ) buying Russian maritime crude.

The move put a cap on Russian oil at $60 a barrel. The price of Russian Ural-grade crude was $47 a barrel on Thursday, according to data from trade news firm Argus. That’s well below the $84 a barrel price of benchmark Brent crude, and a sign that remaining buyers of Russian oil like India and China press Moscow for massive discounts.

Budget pain

The crude cap is already hitting Russia’s fiscal plans hard, and now the EU and its allies want to deal another blow to Russian refined products like diesel.

“Given the effectiveness of the [price cap on Russian crude] … two additional price caps for petroleum products should be introduced,” says the proposal from the EU’s External Action Service seen by POLITICO.

Janet Yellen, the US Treasury Secretary who is on a tour of Africa this week, said: “I’m encouraged we can reach an agreement by February 5.”

The EU proposal suggests setting a cap of $45 a barrel for products that typically trade at a discount to crude, such as fuel oil and white oils, and a cap of $100 a barrel for products that trade at a premium, notably diesel and gas oil.

“This will have a significant effect on Russia because petroleum products are another way for Russia to export its crude oil,” said Janis Kluge, senior associate and Russian budget monitor at the German Institute for International Affairs and Development. security.

While Moscow’s oil companies “are already struggling” to export crude last year, they “tried to run their refineries to the maximum” to get customers for crude, but it won’t be so easy anymore, did he declare.

Russia has historically supplied more than half of the EU’s total diesel imports, raising concerns of a supply shortage once the embargo comes into force. But last-minute diesel purchases and weak demand due to unseasonably warm weather reduce the likelihood of such a near-term scenario, according to Eugene Lindell, head of refined products at energy consultancy FGE.

The suggested diesel price cap is “relatively high”, he said, which “is good for consumers as it minimizes the risk of supply disruption”.

Although the measure will lead to “a big…reshuffle in flows globally”, Lindell expects diesel markets to return to normal by April. Meanwhile, the EU will likely increasingly look to the United States and the Middle East for its refined fuels, he added.

The bloc’s ambassadors will formally discuss the proposal on Friday. They must agree unanimously on the measure before obtaining the approval of the other member countries of the G7.