LNG

The price cap on Russian crude oil backed by the 27-nation European Union and the G7 group of leading western economies entered into force on December 5 and may have an impact on other energy markets and prices.

In addition to the price cap on Russian crude the EU-G7 coalition will cap prices of petroleum products such as gasoline from February 5 in 2023.

“The cap has been set at a maximum price of $60 per barrel for crude oil and will be adjustable in the future in order to respond to market developments,” said a statement on December 3 from the European Commission in Brussels.

“This cap will be implemented by all members of the Price Cap Coalition (EU and G7) through their respective domestic legal processes,” the Commission added.

The price cap, which comes on top of the EU import ban on Russian seaborne crude oil and oil products and the corresponding bans of the G7, is aimed at reducing the revenues Russia earns from oil as a sanction against the invasion of Ukraine in February 2022.

The G7 nations include the EU countries of France, Germany and Italy in addition to the US, Canada, Japan and the UK.

These measures apply to Russian crude oil falling under CN code 2709 00 and Russian petroleum products falling under CN code 2710.

Exceptions

“There is a 45-day wind-down period for seaborne Russian crude oil purchased above the price cap, provided it is loaded onto a vessel at the port of loading prior to 5 December 2022 and unloaded at the final port of destination prior to 19 January 2023,” the Commission explained.

“Maritime-related services and maritime transport can be provided during this period. There is no equivalent provision for petroleum products,” it added.

The Commission stated that “the EU's sanctions against Russia are proving effective and are damaging Russia's ability to manufacture new weapons and repair existing ones” as well as hindering its transport of material.

“The geopolitical, economic, and financial implications of Russia's continued aggression are clear, as the war has disrupted global commodities markets, especially for agrifood products and energy,” added the Commission.

The statement explained that the crude oil cap did not affect the full EU import ban on Russian crude and petroleum products and the specific exceptions and derogations which were already agreed in previous sanctions packages.

“These exceptions and derogations allow certain EU Member States to continue importing crude oil and petroleum products from Russia due to their specific situation or to import seaborne crude oil from Russia if the supply of crude oil by pipeline from Russia is interrupted for reasons beyond their control,” said the Commission.

“Specific projects which are essential for the energy security of certain third countries may be exempted from the price cap,” it added.

Analysts explained that while the EU's ban on importing Russian seaborne crude oil and petroleum products remains fully in place, the price cap will allow European operators to transport Russian oil to third countries, provided its price remains strictly below the ($60) cap.

“The price cap has been specifically designed to reduce further Russia's revenues, while keeping global energy markets stable through continued supplies,” said the Commission.

“It will, therefore, also help address inflation and keep energy costs stable at a time when high costs - particularly elevated fuel prices - are a great concern in the EU and across the globe,” it declared.

Russian President Vladimir Putin and the head of Gazprom have held talks in Vladivostok with Mongolian Prime Minister Luvsannamsrai Oyun-Erdene at the Russian-organized Eastern Economic Forum amid efforts by Russia to push forward with a natural gas pipeline to China across Mongolia, which is sandwiched in Central Asia between both big powers.