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Russia’s oil price cap goes into effect despite threats from Moscow

origin 1A local resident opens the curtains on a window with a view of the Gazprom Neft oil refinery in Omsk, Russia November 18, 2022. ©ALEXEY MALGAVKO/REUTERS

The European Union and G7 cap of $60 a barrel for Russian oil took effect on Monday as the West seeks to undermine Moscow’s ability to continue funding the war in Ukraine while shielding the global economy from a sudden rise in energy prices.

The price cap was agreed by G7 nations, EU countries and Australia on Friday after Poland – which opposed the measure – finally gave its consent green light. Under the deal, Russian oil can be shipped to third countries using G7 and EU tankers, insurance companies and credit institutions, only if the cargo is purchased at or below $60 a barrel.

Before invasion of UkraineRussian oil generally sold for between $55 and $65 a barrel.

The rather conservative $60-per-barrel cap promoted by the EU and the US has drawn criticism from Ukraine, with President Volodymyr Zelenskyy saying the measure will do little to dissuade Russia from make war in Ukraine.

“You wouldn’t call it a serious decision to set such a cap on Russian prices, which is quite comfortable for the budget of a terrorist state,” he said.

In a message posted to Telegram, Zelenskyy bureau chief Andriy Yermak called for lowering the cap to $30 a barrel “to destroy the enemy’s economy faster.”

The level of the cap must be reviewed by the EU and the G7 countries every two months.

origin 1The ruble plunged to a seven-week low against the dollar on Monday morning as the price cap went into effect. Hiro Komae/Copyright 2022 The AP. All rights reserved

On Saturday, Kremlin spokesman Dmitry Peskov said Russia has yet to analyze the new measure but would definitely refuse the price limit. In a tweet posted the same day, Russia’s permanent representative to international organizations in Vienna, Mikhail Ulyanov, said Russia may cut off supplies to nations that have approved the limit.

“From this year Europe will live without Russian oil,” Ulyanov threatened. Wait, very soon the EU will accuse Russia of using oil as a weapon.”

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An unnamed source told Reuters that a decree is being prepared to ban Russian businesses and traders from interacting with countries and companies that have agreed to the cap. This decree would prohibit the export of oil and petroleum products to countries and companies that apply it.

According to analysts, the world’s number two oil producer would likely try to divert its supplies by arranging its own insurance and using the world’s shadowy fleet of clandestine tankers to avoid the price cap, but it won’t be easy… – or cheap. – alternative.

China, one of the countries that bought the most Russian oil since European countries gave up after invading Ukraine, said on Monday it would continue its energy cooperation with Russia on the basis of respect and mutual benefit, according to the ‘Russian news agency RIA reported.

On the back of the entry into force of the EU and G7 price caps, the ruble fell 0.4% to 62.23 against the dollar, a seven-week low.