Europe

Kremlin challenge adds questions about how oil price cap works

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Moscow has insisted it will not sell oil subject to a price limit agreed by the Group of 7, even if it means cutting production, adding to questions about whether the plan, which will come into effect on Monday, succeed in slowing down Russia’s war effort in Ukraine.

The Group of 7 nations agreed Friday to cap the price of Russian crude at $60 a barrel, setting in motion a complex US-backed plan to limit what Russia, the world’s second largest oil exporter, can charge for its oil exports. Proponents of the plan say it is likely to hurt Kremlin finances, while keeping enough Russian crude on the market to avoid a global oil price shock.

On Sunday, Russian Deputy Prime Minister Alexander Novak said the price cap would negatively impact the global market and violate World Trade Organization rules. He said Russia was “working on mechanisms” to undermine enforcement of the cap, without giving further details.

“We will only sell oil and oil products to countries that will work with us on market terms, even if we were to cut production,” he said on Rossiya-24, a news network. Russian state.

The price cap is expected to come into effect on the same day as the European Union ban on imports of Russian crude.

While it was unclear whether the Kremlin would follow through on the threat to cut production – which would also hurt the Russian economy – questions were already being raised about whether the new price cap could be enforced. It relies on every part of the Russian oil supply chain to attest to the price of shipments, and insurers and shippers have warned that records could be tampered with by those seeking to keep Russian oil in circulation. Russia has repeatedly said it will ignore the policy and refuse to sell oil below a price cap.

On Saturday, Ukrainian President Volodymyr Zelensky criticized the price limit as insufficient to deter Russian aggression. Speaking in an overnight address a day after European Union diplomats reached the deal after lengthy negotiations, he said the plan’s architects were “trying to avoid tough decisions”.

The $60 a barrel threshold was a compromise: a group of European maritime nations had demanded that the price cap be set at $70 a barrel or above, to ensure that their commercial interests would not be disrupted; another group of pro-Ukraine countries had demanded that the cap be set at or around $30 a barrel to drastically reduce Russia’s revenue. Eventually, the negotiators settled on a price that is in the vicinity of what major buyers of Russian oil, such as China and India, are currently paying.

Mr. Zelensky found the agreement lacking.

“The logic is obvious: if the price limit for Russian oil is $60 instead of, for example, $30, which Poland and the Baltic countries have been talking about, then the Russian budget will receive around $100 billion a year. “, Mr. Zelensky said.

“This money will not only go to war and not only to Russia’s sponsorship of other terrorist regimes and organizations,” he continued. “This money will also be used to further destabilize precisely those countries that are now trying to avoid big decisions.”

The United States had led the campaign for an agreement along the lines of what had finally been negotiated. After the deal was announced, Treasury Secretary Janet L. Yellen welcomed the plan. This helped “achieve our goal of restricting Putin’s main source of income for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies,” she said, referring to the Russian leader, Vladimir V. Putin.

Western sanctions have so far failed to weaken Moscow’s energy exports: Russia is on track to earn more this year from oil sales than in 2021, supported by a surge in world prices after the start of the war.

EU diplomats agreed that the price cap should be reviewed every two months, or more frequently if necessary, by a committee of policymakers from the Group of 7 countries and allies.

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nytimes Eur

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