Molskis, said Europe could be a Finnish film directly from the 1950s and 60s.
Foolishness, farce and coincidences.
All of them were experienced this week in Brussels, and there was also an upheaval when the European Union’s negotiations on the Russian oil price ceiling ran aground over the weekend.
The stakes are high, but there have been few viewers and the results so far have been poor.
This is what it’s all about
The price ceiling is a simple operation in principle.
It would determine at what price shipping and insurance companies would be allowed to transport and insure Russian oil.
Now the limit has been considered to be 60–70 dollars per barrel. If this comes into effect, the companies may not transport or insure cheaper Russian oil.
The cap would only apply to the companies of the participating countries – but since the companies in the industry are largely Western, the impact would be extensive.
The G7 grouping of leading wealthy Western countries – ie the US, Canada, France, Germany, Italy, Japan and the UK has spoken (you switch to another service) price ceiling for months, but it wants the whole EU to be involved so that the effect is broad enough.
Listen to Politiikkaradio’s analysis of how a price ceiling would affect Russia’s war.
With the price ceiling, we want two things: to cut Russia’s oil income and to ensure that the market price of oil remains at a reasonable level.
– The idea is that Russia would continue to export oil but receive less income from it, says an expert on Russian energy policy, professor of environmental policy Veli-Pekka Tynkkynen from the University of Helsinki.
If the ceiling is too high, it is not a ceiling at all
In principle, the price ceiling has broad support across the G7 countries and the Union. However, the EU member states disagree on where the price limit should be set.
Poland and the Baltic countries, which have a strict attitude towards Russia, support a low ceiling, up to 30 dollars per barrel. The ship owner countries Greece, Cyprus and Malta, on the other hand, want a higher ceiling, because they are afraid of losing Russian oil shipments.
The limit of 60–70 dollars planned by the EU and the G7 countries would be enough to keep the world market price under control, i.e. it would pursue the countries’ own interests, but would not make Russia miserable.
This is because Russia is already selling its oil at a discounted price. It has lost a huge amount of markets when trade with the West has stopped and had to sell oil to India and China at a low price.
While the Western Brent oil price and the Urals price, which describes the Russian trade, used to go hand in hand, since the start of the war, the Urals price has been even 20-30 dollars cheaper per barrel.
– The price of Urals quality is already under 70 bucks. If the price ceiling is set at that same level, the effect is practically negligible, says Professor Veli-Pekka Tynkkynen.
– But if the ceiling can be set to, say, 40, it would already have a significant impact on Russia’s oil revenues, he continues.
Oil production costs in Russia are significantly higher than, for example, in Saudi Arabia, up to 20–25 dollars per barrel. The closer the price ceiling gets to that, the smaller margin Russia gets from its oil.
Russia threatens, probably without teeth
Russia has responded to the price ceiling in a natural way: by threatening.
It has threatened to completely stop oil trade to all countries that are involved in the price ceiling. According to experts, this is probably an empty threat, as about a third of Russia’s budget funds come from the oil trade.
Oil is Russia’s main source of income, so it simply cannot afford not to sell its oil.
Of course, there is money in Russia’s buffer funds, and thanks to it, Russia could temporarily try to influence some oil buyers. But in the slightly longer term, oil must bring income to the coffers, no matter what the purchase price is.
In principle, Russia could leave the countries without price caps to their own luck and sell their oil to other countries at a higher price.
But even that is unlikely in the big picture.
The price ceiling of the leading western countries would be a great bargaining chip for India, China and their partners. They could bargain with the price ceiling of Western countries, invoking very favorable contracts from Russia – and have already done so since the beginning of the war.
This week, the news agency Bloomberg reported that the cheapest oil shipments from Russia have been sold for around $50 a barrel. Russia has sold its oil even cheaper, for example to India For $35 (you switch to another service) from the barrel.
Russia should find more lucrative detours outside of the price world set by Western countries and outside of established shipping companies and insurers. In addition, the G7 has already had time to outline that sanctions would be imposed on operators who circumvent the price ceiling.
– Even if Russia were to invent side streams to export oil via other routes, it would be a smaller and more expensive operation, Tynkkynen says.
Although other than rumblings have been heard, now there may be a thin agreement ahead
There has been more than noise from Brussels.
In the big picture, the EU has managed to be united and hammer out several sanctions that isolate Russia – now the commission is preparing nine packages for the leaders’ table.
As recently as January, 2.5 million barrels of oil per day came from Russia to EU countries. In October, the corresponding figure was only 1.4 million barrels, according to the accounting of the International Energy Agency (IEA).
In a week, on December 5, the drastic action decided in the summer, i.e. the ban on the import of Russian oil by sea, will come into force. This will stop about 90 percent of Russia’s oil imports to the EU.
On February 5, the import of all Russian oil products, such as diesel refined from Russian oil, will end.
And the West also desperately needs a price ceiling for this forced seam, with which to squeeze Russia and secure its own interests. It should be ready next week.
– Here, broad forces are trying to rein in Russia and put economic sticks against its war policy. This certainly looks worrying from the point of view of Putin’s administration, Tynkkynen says.
However, Western politics is about compromises, and so it is here. A wretchedly low price ceiling is unlikely to occur.
Is there a reason to set a price ceiling, and if so, at what level? You can discuss the topic at the link below on November 28. until 11 p.m.
More on the topic:
Russia’s oil and gas revenues for the first time have a clear downward turn and a sharper drop is yet to come – “Sanctions are working”, says an expert
EU foreign ministers discussed new sanctions against Russia – Foreign Minister Pekka Haavisto: “Finland supported the preparation of the ninth sanctions package”