Putin’s economic plan could be starting to fail with the $60 price restriction on Russian seaborne oil, as reported by Aljazeera.
Economic conflict
A new phase in the economic conflict between Russia and the West began on December 5 with the implementation of a $60 per barrel price cap on Russian seaborne oil that had just been agreed upon by the European Union, the G7, and Australia.
Although the price cap appears to be largely misunderstood, it may be one of the most significant responses to Russia’s weaponization of its energy reserves since the start of its all-out invasion of Ukraine.
Contrary to popular belief, there is no attempt to stop Russian oil exports with the price ceiling. Instead, it intends to make sure that they keep flowing despite tougher laws and sanctions, albeit not to Western markets. Indeed, it is still legal for China, India, and many other third nations to continue buying Russian crude in big volumes and at steep discounts as of February. The cap’s goal is to ensure that the existing discounts remain ongoing rather than to prevent these purchases by limiting Russia’s revenues, which are primarily used to fund its war effort.
After Russia’s invasion
The international coalition fighting Russia’s war on Ukraine has had difficulty reaching an agreement on the move; the final parameters were only accepted by all parties on December 2. The location of the cap was the problem. The nations ultimately chose to put it at $60, which is higher than the price at which the majority of Russian crude was selling just before the limit. Poland was the last holdout, and it was undoubtedly the country in Europe that was most supportive of Ukraine after Russia’s invasion. Russia would still make a profit from the barrels it exports if the cap were established at that level, as Volodymyr Zelenskyy of Ukraine and Warsaw also criticised.
But in the end, all sides agreed to a $60 cap because they understood that at that price, Russia’s earnings could be severely curtailed without seriously upsetting the global oil markets and perhaps driving up everyone’s prices. In fact, a lower price cap would have likely compelled Russia to take dramatic measures, such as ceasing all exports, harming those countries that also import oil alongside Russia.
Despite its cries and groans that any price caps would be an unforgivable breach of its sovereignty, the Kremlin has already been exporting its oil at significant discounts since February. Therefore, a cap of $60 is actually just an attempt to make the current system permanent.
Necessary services
Simply by refusing to offer necessary services, such as ship brokerage and insurance, for Russian crude that is sold above the cap, the West will put a cap on the amount that may be exported.
Moscow is solely to blame for this depressing situation. President Putin made a number of serious errors in judgement when he started the war against Ukraine and chose to challenge the global economic system.
First and foremost was, of course, his fatal and terrible misreading of Ukraine — Putin believed that the majority of Ukrainians would welcome Russian troops and that his “special military operation” would quickly lead to victory.
His second error was underestimating how far Russia could subvert the global economic system without being met with resistance. He believed that his nation’s sway over the energy sector would make it simple for him to split the West and prevent his enemies from approving multilateral measures like the price cap, which could severely curtail his capacity to engage in economic warfare.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!
Source: Aljazeera
