The European Union was pushing ahead with an ambitious plan to limit Russia’s oil revenue, but the Western effort to drain funding from President Vladimir Putin’s war machine faced a new hurdle: Global oil producers on Wednesday decided to sharply cut the supply, making Russia’s crude even more valuable on the world market.
Opec and its allies, including Russia, announced a sharp reduction in crude output at a meeting in Vienna. By reducing supply, the decision by the group known as Opec+, was likely to keep global oil prices high, allowing Russia to continue earning significant revenue from its crude exports.
It also could lessen the chances that other major buyers of Russian oil, notably China and India, will go along with the price cap. Without those countries’ cooperation, the price cap plan, championed by the Biden administration, would have far less impact.
The EU price cap was expected to gain final approval Thursday, after negotiators reached an agreement late Tuesday on the measure as part of a fresh package of sanctions against Moscow.
Under the plan, a committee of representatives of the European Union, the Group of 7 major industrialized nations and others that agree to the price cap would meet regularly to decide on the price at which Russian oil should be sold, and that it would change based on the market price.
Several diplomats involved in the EU talks said that Greece, Malta and Cyprus, maritime nations that would be most affected by the price cap, received assurances that the would be permitted to continue shipping Russian oil, the diplomats said.
Those countries had been holding up what would be the eighth package of sanctions the European Union has adopted since the Russian invasion of Ukraine because of worries that a price cap on Russian oil exported outside the bloc would affect their shipping, insurance and other industries, the diplomats said.
The cap, part of a broad plan pushed by the Biden administration that the G-7 agreed to last month, is intended to set the price of Russian oil lower than where it is today, but still above cost.
The US Treasury calculates that the cap would deprive the Kremlin of tens of billions of dollars annually.
To cut Russian revenue, the United States, Europe and their allies would need to convince India and China, which buy substantial quantities of Russian oil, to purchase it only at the agreed upon price. Experts say that even with willing partners, the cap could be hard to implement.
Under the new rules, companies involved in the shipping of Russian oil, including shipowners, insurers and underwriters, would be on the hook for ensuring that the oil they are helping to transport is being sold at or below the price cap. If they are caught helping Russia sell at a higher price, they could face lawsuits in their home countries for violating sanctions.
Russian crude will come under an embargo in most of the European Union on Dec 5, and petroleum products will follow in February.
The price cap on shipments to other countries has been championed by US Treasury Secretary Janet Yellen as a necessary complement to the European oil embargo.