The Russian government has said that it “will not accept” a price cap on its oil. Russia’s response came today after the EU reached an agreement on Friday to join the G7 in capping Russian oil imports at $60 per barrel.
A full response has not yet come from the Kremlin who are thought to be formulating a strategy to counter the West’s latest round of sanctions.
The price cap is the latest measure adopted by Western allies to sanction Russia for its invasion of Ukraine. The EU has simultaneously introduced a measure to ban all seaborne imports of oil from Russia.
Moscow has yet to issue an official response to these latest sanctions but a spokesperson for the Kremlin has made some comments to the press. Dmitry Peskov told the RIA news agency that “we will not accept this cap.”
Peskov also said that the Kremlin is busy conducting a rapid analysis of the situation and will respond appropriately soon.
Countries outside of the G7 and the EU that import oil from Russia are also yet to respond. It remains to be seen whether states like China or India will adhere to the price cap. However, back in September, Beijing voiced its opposition to the cap and instead urged dialogue.
Countries outside of the G7 and EU will not have to adhere to the embargo or the cap. However, many firms responsible for insuring and transporting Russian oil are based in Europe.
To keep up shipping oil, the Russians and/or their export partners will likely have to foot the bill for alternatives to European transport and insurance.
The oil cap
After months of deliberation, the EU finally reached an agreement on capping the price of Russian oil to $60 per barrel. The decision was made as part of a broader Western effort to limit Putin’s profits from the energy sector.
Earlier in the year, the European bloc agreed on a partial ban on Russian oil imports. In March, Washington opted for a stronger measure and voted for a complete ban on Russian oil imports to the US.
Presently, there are concerns that the $60 cap will not be enough to limit Russia’s profits from fossil fuels. This is because Russian energy companies have already been selling crude oil below the Brent international benchmark.
Ukraine has urged the West to consider halving the cap further to $30. Some Eastern European members of both NATO and the EU, like Poland and Estonia, have also argued in favor of a more aggressive cap.
European energy security
The war in Ukraine is having a particularly profound effect on Europe’s energy security. European officials are anxious that soaring energy prices could cause an economic crisis this winter.
Russia could react to the increasing weight of Western sanctions by cutting off the gas supply to Europe. Russian energy firms have already begun lessening the supply of natural gas to EU members this year. Further fears were raised by explosions that halted the supply of gas via the Nord Stream pipelines.
The EU is adopting several measures to lessen Europe’s energy dependency on Russia. For example, in July, Greece and Bulgaria opened a new pipeline that supplies natural gas from Azerbaijan.
Meanwhile, the impact of the price cap and embargo on the global oil market remains unclear. A lot will depend on how Russia and non-Western importers respond to the sanctions.