Price Cap on Russian Oil: Who Will Benefit?

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Since the start of Russian attacks in Ukraine there has been a parallel strategic war where the western bloc of countries and Russia are engaged in a geopolitical game of chess in which the west wants to avoid direct confrontation, weaken Russia’s ability to finance its military operation in Ukraine while also attempting to reduce the risks associated with the worlds reliance on Russian oil and gas. In their effort to assist Ukraine and put an end to the war they have provided military weapons to Ukraine on one hand and imposed sanctions on Russia on a wide range of sectors, targeting individuals, banks, businesses, monetary exchanges, bank transfers, exports, and imports etc. on the other. The latest inclusion in this effort is adopting a price cap on Russian oil and banning seaborne import of Russian crude oil into EU that came into effect on 5th December after a long-held discussion.

Price cap on Russian oil and its purpose

In the global energy market Russia is a significant player and is the third top producer of crude oil, just behind Saudi Arabia and the United States. Profits from energy export, which accounted for 45% of Russia’s federal budget in 2021, are a major source of income for the country. From 5th December, the United States, Canada, Australia, the United Kingdom and 27 other members of the European Union have agreed to put a price cap of $60/barrel on seaborne crude oil of Russian Federation origin. They have decided not to purchase or offer the required maritime services and insurance to transport Russian oil at prices greater than $60 per barrel. In economic terms, they’ve set up a buyer’s cartel to drive down the price of Russian oil in an effort to ostensibly make it more difficult for Russia to carry out its aggression in Ukraine. Since the country decided to invade Ukraine on 24th February this year the global oil price has sky-rocketed, soaring to almost $125 a barrel at its peak from nearly $95 a barrel prior to war. This inflated price has hugely benefited Russia to fund its invasion in Ukraine and the additional revenue has largely contributed to make up the loss caused by western sanctions.

– Wahid Uzzaman Sifat is a Research Intern of the KRF Center for Bangladesh and Global Affairs (CBGA).

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