Now that everyone is settled with a price cap on Russian oil, world leaders started discussing a similar measure for gas.b
It’s official: the EU and other international partners will implement a $60 per barrel price cap on Russian oil. The proposal was issued last Thursday and finally approved by all EU members on Friday. Today, Saturday, the G7 and Australia also jumped on the price cap, making it a global measure.
The participation of the United States, Australia and the other G7 countries was crucial for several reasons. First of all, the European Union will stop any import of Russian seaborn oil from December 5th. So, a similar price cap only for Europe would have been rather pointless.
Second, it increases the strength of economic sanctions against Russia, which will now have to rely solely on China and India for their trade.
The initial proposal was a $65-70 price cap, but it was deemed too high by some Eastern European countries and negotiations continued. A price cap of $60 per barrel seems to be a good enough compromise.
Indeed, US Treasury Secretary Janet Yellen thinks that Russia will be immediately hit by the price cap. Revenues should significantly drop, and with the war in Ukraine entering its tenth month, Moscow should have an increasingly harder time funding its invasion.
However, it seems like Russia wants to regain the initiative in Ukraine by launching another attack in the Donbass. The Ukrainians, however, are well entrenched into the frontline and some already speculate it will be the bloodiest battle of the war.
And bloody battles come to a significant cost. Putin, after the revenue hit coming from the oil price cap, might even receive a bigger one in the following weeks.
A price cap on Russian gas is possible
For Europe, oil was not the most important fossil fuel coming from Russia. It was, actually, natural gas. So important, in fact, that immediately after the war broke out Europe increased sales of gas from Moscow.
That was because Europe wanted to fill their reserves of gas before it was too late. A preventive move before the inevitable would happen: Russia closing its taps in a way or another.
Now, European gas reserves are full, and the West is ready to retaliate. Talks of an European price cap on gas already happened: the EU Commission proposed last week to put it at €275 per megawatt/hour.
Once again, some countries thought it too high to be effective. A group of EU countries (including the ambitious Italy with its dreams of becoming an European gas hub), proposed a different solution.
The group thinks that the price cap should either be fixed at a much lower €160 level or should be dynamic following market rebounds.
EU diplomats will meet on December 13th to discuss the price cap on gas. Until then, everything is only speculation.
