EU and G-7 Impose Price Caps on Russian Petroleum Products
The European Union and its G-7 allies have imposed two price caps for Russian petroleum products – one is a $100-per-barrel cap on products that trade at a premium to crude, like diesel, and the other is a $45 cap for petroleum products that trade at a discount to crude. The caps are meant to ensure that Russian diesel and other oil products can still be sold to third countries and prevent any massive spike in prices following the EU ban.
Deputy Prime Minister Alexander Novak stated that Russia will “voluntarily cut production by 500,000 barrels per day” in March in response to the sanctions and price caps. This move will have an impact on the global oil market and has already sent crude prices higher, with Brent crude climbing as much as 2.6% in London to trade above $86 a barrel, erasing an earlier decline, while West Texas Intermediate moved above $80 a barrel.
Analysts have said that one possible Russian response to the cap would be to slash production to try to raise oil prices, which could eventually flow through to higher gasoline prices at the pump as less oil makes it to the global market. However, the deputy prime minister stated that the cuts will help to restore market relations.
The sanctions and price caps have had a major impact on Russia's fossil fuel income and crude prices have fallen by 9% since mid-January. The new reduction could be “an early sign that Russia might try to weaponize oil supplies after last year’s failed attempt to weaponize natural gas,” according to Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels.
This is the latest in a series of sanctions and restrictions imposed against Russia over the last year in response to the invasion of Ukraine. The European Union had already banned Russian coal and most crude oil, while Moscow had cut off most shipments of natural gas.
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