FRANKFURT, Germany (AP) \u2014 Major Western measures to\u00a0limit Russia\u2019s oil profits\u00a0over the war in Ukraine took effect Monday, bringing with them uncertainty about how much crude could be lost to the world and whether they will unleash the hoped-for hit to a Russian economy that has held up better than many expected under sanctions.<\/p>\n\n\n\n
In the most far-reaching efforts so far to target one of Moscow\u2019s main sources of income, the European Union is banning most Russian oil and the Group of Seven democracies has imposed a\u00a0price cap of $60 per barrel\u00a0on Russian exports to other countries.<\/p>\n\n\n\n
The impact of both measures, however, may be blunted because Russia has so far been able\u00a0reroute much of its European seaborne shipments to China, India\u00a0and Turkey, although at steep discounts, and the price cap is near what Russian oil already cost.<\/p>\n\n\n\n
As it stands, Russia will likely have enough money to not only fund its military but support key industries and social programs, said Chris Weafer, CEO and Russian economy analyst at consulting firm Macro-Advisory.<\/p>\n\n\n\n
\u201cAt this price level, that outlook really doesn\u2019t change much. But what is key is how much volume Russia would be able to sell,\u201d he said. \u201cAnd that depends not only on the willingness of Asian buyers to continue buying Russian oil, but also what is the physical ability of Russia to shift that oil.\u201d<\/p>\n\n\n\n
Western leaders are walking a fine line between trying to cut Russia\u2019s oil income and preventing an oil shortage that would cause a price spike and\u00a0worsen the inflation plaguing economies\u00a0and hurting consumers worldwide. They could later agree to lower the price cap to increase pressure on Russia, which says it will not sell to countries that observe the limit.<\/p>\n\n\n\n
That could take oil off global markets and\u00a0raise energy costs, including for gasoline at the pump. International benchmark Brent crude rose 2% to $87.30 per barrel Monday.<\/p>\n\n\n\n
The cap must be lowered \u201cquickly and progressively\u201d to seriously cut Russian revenue, said Lauri Myllyvirta, lead analyst at the Finland-based Centre for Research on Energy and Clean Air.<\/p>\n\n\n\n
He said even the $60 cap, if enforced, would already push Russia to lower per-barrel tax, calling it \u201cby far the biggest step to date to cut off the fossil fuel export revenue that is funding and enabling Russia\u2019s barbaric invasion of Ukraine.\u201d<\/p>\n\n\n\n
Russia has been living off the\u00a0huge windfall from higher oil prices\u00a0earlier this year and will be more vulnerable in the next several months when that money is spent, Myllyvirta said.<\/p>\n\n\n\n
Kremlin spokesman Dmitry Peskov, asked in a conference call\u00a0how the oil price cap might affect the war, said, \u201cThe economy of the Russian Federation has the necessary potential to fully meet all needs and requirements within the framework of the special military operation, and such measures will not affect this.\u201d<\/p>\n\n\n\n
The U.S., EU and allied countries have hit Russia with a slew of sanctions aimed at bank and financial transactions, technology imports and regime-connected individuals. But until now, those sanctions have for the most part not directly gone after the\u00a0Kremlin\u2019s biggest moneymaker, oil and natural gas.<\/p>\n\n\n\n
Europe was heavily dependent on Russian oil and natural gas\u00a0before the war and has had to scramble to find new supplies. Previously, the EU banned imports of Russian coal, and the U.S. and the U.K. halted their limited imports of Russian oil, but those steps had a much smaller economic impact.<\/p>\n\n\n\n
Even as Western customers shunned Russian oil, the higher prices driven by\u00a0fears of energy shortages\u00a0helped offset lost oil sales, and Russian exporters have adjusted by shipping more oil to Asian countries and Turkey in a major reshuffling of global oil flows.\u00a0Russia\u2019s economy has shrunk\u00a0\u2014 but not by as much as many expected at the start of the war almost 10 months ago.<\/p>\n\n\n\n
One unknown is how much of the oil formerly sold to Europe can be rerouted. Analysts think many, but not all, of the roughly 1 million barrels covered by the embargo will find new homes, tightening supply and raising prices in coming months.<\/p>\n\n\n\n
Indian Foreign Minister Subrahmanyam Jaishankar indicated Monday that the country would\u00a0keep buying oil from Russia\u00a0to prioritize its own energy needs. India also so far hasn\u2019t committed to the G-7 price cap.<\/p>\n\n\n\n
The cap has a grace period for oil that was loaded before Monday and arrives at its destination before Jan. 19 to minimize disruption on oil markets.<\/p>\n\n\n\n
The measure bars insurers or ship owners \u2014 most of them located in the EU or U.K. \u2014 from helping move Russian oil to non-Western countries unless that oil was priced at or below the cap.<\/p>\n\n\n\n
The idea is to keep Russian oil flowing while reducing the Kremlin\u2019s income. The U.S. and Europe\u00a0leaned more toward preventing a price spike\u00a0than provoking financial distress in Russia.<\/p>\n\n\n\n
French Finance Minister Bruno Le Maire said Monday that the cap was \u201cworth trying,\u201d adding that \u201cwe will make an assessment of the efficiency of the old cap at the beginning of 2023.\u201d<\/p>\n\n\n\n
Ukraine\u2019s President Volodymyr Zelenskyy had called for a price ceiling of around $30 per barrel. That would be near Russia\u2019s cost of production, letting Russian oil companies earn enough only to avoid capping wells that can be hard to restart. Russia needs some $60 to $70 per barrel to balance its budget.<\/p>\n\n\n\n
One wild card is Russia\u2019s response. If it pulls oil from countries observing the cap, that could limit supply and raise prices, benefiting Russia to the extent it can evade the restrictions.<\/p>\n\n\n\n
Russia could use methods such as those employed by Iran and Venezuela to dodge sanctions, such as using \u201cdark fleet\u201d tankers with obscure ownership and ship-to-ship transfers of oil to tankers with oil of similar quality to hide its origin. Russia or China could also organize their own insurance. Sanctions experts say that those steps will impose higher costs on Russia.<\/p>\n\n\n\n
The new EU sanctions led the Italian government to take temporary control of the Russian-owned ISAB refinery in Sicily last week. The government stopped short of nationalization but put the facility, where about 20% of Italy\u2019s oil is refined, under receivership to protect 10,000 jobs linked to the refinery and its suppliers.<\/p>\n","protected":false},"excerpt":{"rendered":"
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