Roadblocks persist to capping Russian crude exports

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The EU is split on the price to charge for Russian exports

Rashid Husain SyedThere are less than two weeks left, but the decision to cap Russian seaborne crude exports at a ‘certain price level’ still faces significant roadblocks. And the G7 and the European Union have not yet made a final decision as to the price target they will allow for the importation of Russian crude imports.

The cap, set for Dec. 5, is meant to curb Moscow’s ability to pay for its war in Ukraine without causing a global oil supply shock and the subsequent price spike. The cap prohibits shipping, insurance, and re-insurance companies, mainly based in G7 countries and Europe, from handling cargoes of Russian crude around the globe unless it is sold for less than the price level set by Group of Seven (G7) and its allies.

But the price target is proving elusive.

A meeting of the EU scheduled for last Friday to consider the G7 price proposal to cap Russian seaborne oil prices was cancelled. “There was not enough of a convergence of views,” Reuters quoted a senior diplomat.

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According to reports, a price cap of US$65 to US$70 a barrel for Russian crude is currently on the table. This price level is not expected to immediately shrink Putin’s oil revenues because this is more or less the price buyers are currently paying for Russian crude. According to two sources, some Indian refiners have been paying a discount of US$25 to US$35 for Russia’s Urals compared to Brent, which is currently trading at around US$85 a barrel, according to

The EU is split on the price level of Russian seaborne crude exports. EU members Poland, Estonia, and Lithuania are pushing for a much lower cap than the US$65 to US$70 per barrel proposed by the G7, while Greece, Cyprus and Malta are lobbying for a higher cap or some form of compensation for the expected loss of business to their large shipping sectors, Reuters said.

A cap of between US$65 and US$70 per barrel could allow Russia to keep selling oil while keeping its earnings at current levels. A lower cap – at around US$50 per barrel – would make it difficult for Russia to balance its state budget. Moscow reportedly needs around US$60 to US$70 per barrel to attain “fiscal break-even.”

However, that US$50 cap would still be above Russia’s cost of production of between US$30 and US$40 per barrel, giving Moscow an incentive to keep selling oil simply to avoid having to cap wells that can be hard to restart, according to AP.

Understandably, Ukraine wants the price cap to be even lower. The price for Russian crude should be capped at between US$30 and US$40 per barrel, Ukrainian President Volodymyr Zelensky said on Saturday. “The limit that is being considered today – about US$60 – I think this is an artificial limit,” he said. Zelensky has consistently pushed allies to impose stricter sanctions of all types against Russia.

The EU also failed on Thursday to agree on a price cap for Russian gas exports to the bloc, media reports said. While an earlier statement stated the EU had set a “safety price ceiling” for Russian gas at 275 euros, or US$283, per megawatt-hour, a consensus on that price level is missing.

A price cap could result in Russian retaliation. Weeks ago, Putin underlined that Russia will not observe a cap and will halt deliveries to countries that do. A lower cap of around US$50 could be more likely to provoke that response, or Russia could stop its remaining natural gas supplies to Europe.

It is also becoming evident that the two main buyers of Russian energy resources, China and India, might not go along with the cap. Claudio Galimberti of Rystad Energy told AP that China and India are already enjoying discounted oil and may not want to alienate Russia. “By complying with the cap set by the G7, China and India risk alienating Russia. As a result, we do believe that (their) compliance with the price cap would not be high.”

It is also possible that Russia could turn to transferring oil from ship to ship to disguise its origins and mixing its oil with other types to skirt the ban, Galimberti asserted.

Keep in mind that Russia also has assets in other crude-producing countries, Libya and Iraq in particular. Moscow retains the ability to cause problems in those states, some U.S. energy officials had pointed out in the past.

And in the meantime, with the tug-of-war continuing and the EU divided, the ultimate outlines of the price cap and its effect are still to be determined.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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By Rashid Husain Syed

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.

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