EU Sanctions Package: A New Chapter in Russia’s Economic Isolation
The European Union is poised to approve a new package of sanctions against Russia next week, but uncertainty remains about its effectiveness in crippling Moscow’s economy. The 18th package of restrictions aims to cover the energy and financial sectors, as well as the supply of dual-use goods and technologies.
The proposed sanctions include a ban on transactions involving both Nord Stream pipelines, as well as the shadow fleet Russia uses to transport oil, adding 77 oil tankers to the sanctions list. Additionally, the package proposes a ban on importing petroleum products made from Russian oil to third countries. Most significantly, it initially included lowering the oil price cap for Russian exports from $60 to $45 per barrel.
The original goal of the package was to reduce Russia’s revenues from energy sales and strengthen financial isolation. The new package is intended to be one of the toughest yet. European Commission President Ursula von der Leyen emphasized this point, stating, “Strength is the only language Russia understands.”
G7 Summit: A Roadblock to Tightening Sanctions
However, the G7 summit held in Canada on [insert specific date] revealed a lack of consensus on lowering the oil price cap. The United States opposed it, while EU and UK representatives did not take the initiative. This development has raised concerns about the effectiveness of the sanctions package.
The war between Israel and Iran has driven oil prices up, making it more challenging to lower the cap. Brent crude has risen by $10 in the past two weeks, now costing nearly $77 per barrel. Russian Urals crude increased from $60.6 to $74.7. The EU’s approval of a new oil price cap at $45 per barrel currently seems unrealistic.
Ukraine’s Proposal: A Price Cap of $30
Ukraine has proposed a price cap of $30, which could make Russian oil exports completely unprofitable. This is roughly close to the average marginal cost of oil production at the wellhead. With transportation and handling costs taken into account, the average cost would be $45.
According to Ukraine’s Commissioner for Sanctions Policy, Vladyslav Vlasiuk, a price cap of $30 would still allow Russian companies to produce oil profitably, but the budget would receive almost nothing. He emphasized that production would not stop, as there is nowhere else to get foreign currency.
The Shadow Fleet: A Bypassing Mechanism
The shadow fleet, which includes over 650 vessels, allows Russia to sell oil at or above the cap, generating no less than $16 billion per year. This mechanism was created to bypass current sanctions and has been used by other countries as well. Vlasiuk noted that 21% of vessels working with Iranian oil also work with Russian oil.
The EU’s new sanctions package aims to address these concerns and strengthen the financial isolation of Russia. However, its effectiveness remains uncertain, particularly in light of the G7 summit’s outcome. As the situation unfolds, it is clear that the battle to crush Russia’s economy will be a long and complex one.
Original Article: Sanctions, oil, shadow fleet. Can the EU crush Russia’s economy? — Rbc