The West wants to cap the price of Russian oil. But currently it is much lower than the planned upper limit anyway. It would therefore have little significance for trade.
The price cap on Russian oil planned by the leading Western industrialized countries could be less effective than planned. Because the price is currently well below the promised upper limit. Expressed in numbers: a barrel of the Russian Urals variety costs just under 52 US dollars. The EU is discussing a much higher cap of between $65 and $70 proposed by the G7, a group of industrialized countries.
In view of the Russian war of aggression in Ukraine, the G7 want to introduce the price cap to reduce the Kremlin's revenues. Before that, however, the European Union must agree. However, the current price shows how difficult it is for EU members to find an effective upper limit.
Because the cheaper Russian oil is, the more pressure there is to lower the cap. But the interests of the member countries are different. Some states, including Poland and Estonia, want a much lower cap. Greece and Cyprus, on the other hand, are demanding a much higher limit. Shipping companies based there transport a lot of Russian oil and therefore want to limit trade as little as possible.
The background: An estimated 70 to 85 percent of Russian crude oil exports are transported by tankers and not via pipelines. The idea of the price cap is to ban shipping, insurance and reinsurance companies from handling Russian crude oil shipments - unless the oil is sold at a price no higher than the maximum set by the G7 and its allies. Since the world's major shipping and insurance companies are based in the G7 countries, the price cap would make it very difficult for Moscow to sell its oil at a higher price.
The production cost of Russian oil is estimated at around $20. If the price cap is higher, it is still worthwhile for Russian companies to produce oil. The G7 wants to prevent a supply bottleneck on the world market. Oil is of enormous importance for Russia, it is the country's most important export article. At the same time, production worldwide accounts for ten percent of global supply.
