West Considers Price Capping Russian Oil

Western countries are discussing limiting the price of Russian oil to $40-60 per barrel to limit Russia’s energy profits.

According to Bloomberg on July 6 (citing its own sources), the European Union, United States and other partners of Ukraine are seeking to strengthen sanctions against Russia by setting a limit on the price of oil supplied by sea.

The West has made considerable progress in building packages of sanctions designed to limit Russian President Vladimir Putin’s war in Ukraine.

These have contributed to freezing the Russian Central Bank’s reserves, forcing the ruble to be propped up by tight control over capital and revenues from the sale of oil and gas.

Current EU imports of Russian oil – over a million barrels per day – are feeding the Kremlin’s war machine by approximately 5 billion euros per month. This in turn is being pumped back into the Russian military campaign against Ukraine.

Curtailing those supplies is vital to cutting Putin’s revenue stream, the ruble’s strength and Russia’s already fragile financial system.

The EU, after some debate, decided to cease the purchase of Russian oil transported by sea, but that will take several months to take effect. According to experts, the marginal cost of production in Russia’s existing oil fields is extremely low, requiring a more urgent and corresponding low price cap that Russia receives per barrel of oil.

Another possible option – a complete embargo on exporting oil to the rest of the world by EU vessels – would have the side-effect of increasing prices and causing worldwide economic pain. On that basis, the supply of Russian oil to international markets will continue, preventing a short-term negative impact on prices worldwide.

Russia could refuse to supply oil at such a low price and stop production, but this would negatively affect its oil wells and its OPEC+ membership. This would in turn cause even more damage to the Russian economy and increase pressure on the ruble.