Europe wants to reduce the price of Russian oil to $45. What does it mean

The 18th package of EU anti-Russian sanctions may include a proposal to lower the ceiling on oil prices to $45 per barrel. The new restrictions are intended to increase pressure on Russia amid stalled peace talks, as well as on companies and countries that have allowed Moscow to circumvent the existing sanctions regime. Whether a new round of energy wars will be effective is in the Izvestia article.

The essence of the restrictions

• In 2022, Western countries imposed a ceiling on Russian oil prices at $60 per barrel. Then the limit was also set for Russian oil products, including diesel and fuel oil. It is assumed that if oil and its derivatives are supplied at a price above the established ceiling, Western companies will not be able to provide transportation support services. However, until now, major market players such as India and Turkey continue to import Russian oil and refine it into products that are then exported to the EU.

• The European Commission (EC) now wants to once again reduce the price limit for Russian oil from $60 to $45 per barrel and ban the use of the Nord Stream energy infrastructure. In addition, Europe plans to impose sanctions against more than 70 vessels allegedly involved in the transportation of Russian energy resources.

• The Western expert community already recognizes that the EU no longer has levers of economic pressure on Moscow. The countries adopted the previous price ceiling in order to reduce Russia's revenues from oil exports without limiting the supply of raw materials to the market. However, the data shows that the ceiling is not working. The adoption of new sanctions packages is political in nature: the European Union wants to prove that it is Brussels that sets international economic rules.

Retaliatory measures

• In response to economic restrictions, back in 2022, Russia banned the supply of Russian oil and petroleum products to foreign citizens and companies if the contracts directly or indirectly provide for a price ceiling. However, Moscow can make exceptions. This decision has already been extended several times. At the moment, it is valid until the end of 2025. It is likely that if a new price ceiling is adopted, Russia will tighten existing retaliatory measures.

• Against the background of the sanctions wars, the Russian Federation has long reoriented the supply of its petroleum products to other markets outside Europe. Thus, according to Deputy Prime Minister Alexander Novak, the share of oil supplies to friendly countries increased from 40% in 2021 to 86% in 2023. Similar indicators are also available for petroleum products. Exports of petroleum products in 2023 decreased only slightly, by about 3% compared to a year earlier.

Prospects for sanctions

With its sanctions, Europe has provoked an energy crisis for itself. They caused a sharp rise in energy prices, which led to serious problems for households and businesses, as well as increased inflation. In this regard, indignation at the ongoing economic wars with Russia is increasing within the European Union. Hungary and Slovakia continue to receive Russian oil through the Druzhba pipeline. The price ceiling applies only to sea shipments, so they are unlikely to support the tightening of measures already taken.

• The United States will benefit the most from the new round of energy wars. The share of Russian oil in the EU market began to decline after February 2022, but fell sharply after the introduction of the price ceiling. At the moment, Washington has come out on top in terms of oil supplies to the EU.

Oil numbers: government allowed fuel prices to rise above inflation

How much can gasoline and diesel become more expensive and will it affect the market

• Oil remains too important and sensitive a commodity on a global level. Many countries act pragmatically, because it is more profitable for them to buy cheap Russian oil than to interfere in the sanctions game. As a result, the price ceiling became more of a political signal than a working mechanism. He did not bring down Russia's revenues, but only complicated the path to them. Lowering the ceiling on Russian oil prices is likely to be ineffective for the same systemic reasons as its introduction, but with even less impact. This is an attempt to tighten the measure, which initially does not work in full.

When writing the material, Izvestia talked and took into account the opinions of:

• Igor Yushkov, a leading analyst at the National Energy Security Fund;
• Alexander Frolov, Deputy Director General of the National Energy Institute.