Oil price ceiling, what? Read these 6 points and you’ll get the gist Only about a third of Swiss still believe it’s true

That happened

The European Union, the G7 countries and Australia agreed on Friday after weeks of discussions on a maximum price of USD 60 (56 Swiss francs) per barrel (159 litres) for crude oil of Russian origin transported by sea.

What does that mean?

The starting point is that it is no longer allowed to supply Russian oil to third countries – but only if the price of the cargo exceeds the cap. Conversely, this means that deliveries are still allowed provided the maximum price is respected. Then Western shipping companies can continue to bring Russian oil to India, China or other countries with their ships.

Part of the measure is also that companies are prohibited from providing services that make maritime transport possible (freight, insurance, etc.).

What is the purpose of this?

The signatory states hope that the cap will ease the situation in the energy market. In addition, of course, Russian oil exports must be reduced. If Russia can sell less oil, it will earn less to keep the war machine running. Since oil prices in the market have sometimes risen sharply in recent months, Russia has even benefited financially from the war in terms of oil sales. In principle, the West now wants to use this measure to force Russia to sell oil below the market price to buyers in other countries.

According to Estonian Prime Minister Kaja Kallas, every dollar less per barrel (159 liters) could reduce Russian oil revenues by about $2 billion a year.

Does the plan work?

Can’t say for sure yet. The price of a barrel of Russian oil (crude oil from the Urals) is currently hovering around $65, just above the European ceiling, so this should have a limited impact in the short term. Therefore, the height of the lid has been criticized from various quarters (see below).

It is also not possible to make a definitive estimate of what it will look like in the longer term. That’s why there was such a long discussion. The mere prospect of a price cap put pressure on crude oil prices.

Russia has also said it will not sell crude oil to countries that adhere to the price cap. If the Kremlin pulled this off, there could be a serious shortage of oil in the market and could even lead to rising prices. So it very much depends on how, for example, China, India or Egypt, which currently buy a large share of Russian oil, behave.

For the countries involved, the oil cap is also about creating an instrument with which to put further pressure on Russia. You can now threaten Russia to lower the limit further. The unification of the states was therefore simply described by various circles as a “strong political signal”.

This is how Ukraine reacts

Kiev predicted on Saturday that Russia would crush its economy through the oil price cap agreed by the European Union, the G7 and Australia.

The aim of the Ukrainians has always been to limit Moscow’s resources to finance the conflict in Ukraine. “We always achieve our goal and the Russian economy will be destroyed, and it will pay for and be responsible for all its crimes,” Ukrainian presidential chief of staff Andriy Yermak told Telegram.

However, both Yermak and later Volodymyr Zelenskyj criticized the height of the lid. They would have preferred the top price to be $30. Poland and several US representatives also wanted to set the limit at $30. The current ceiling is not effective enough because it is too close to the market price, the argument goes.

How does Moscow react?

Russia, the world’s second largest crude oil exporter, in turn, had warned it would stop supplying oil to countries that would implement the cap. Without this limit, the Russians could easily find buyers at the market price.

Another option for the Kremlin would be to set its own oil price floor and stop supplying countries willing to pay less than that limit. That would be a kind of compromise – according to observers, Russia cannot afford to stop supplying oil altogether. Since the start of the war, Russia alone has earned 67 billion euros (66 billion francs) from its oil sales to the EU.

A third option would be for Moscow to try to circumvent the cap by using maritime transport clouding.

(con/lacquer/sda/dpa)