The new EU "cap" against the Russian oil industry: it's not fatal, but there is a danger

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented on the EU countries' initiative to introduce a floating "price cap" for Russian oil supplies to third countries to the Neft and Capital Internet portal.

Alexey Gromov said that the floating price ceiling mechanism could be very unpleasant for the Russian oil industry than if there was just a reduction in cost, say, to a clear $45 per barrel.

"A total ban would lead to the fact that the main buyers of Russian oil would simply ignore it. But the formula with a floating price, below the market by 15%, is a reason for countries to knock out more and more discounts from Russia. This is a stable factor of influence on the Russia’s budget revenues from the export of black gold.

By the way, now Russian oil, if you add to it the cost of freight and the cost of traders mediation, has almost no discount. It amounts to a meager $3-4 per barrel, which is practically the same as before the start of the sanctions wave against Russia until 2022," the expert says.

According to Gromov, the EU can identify two sets of sanctions that have really had an impact on the Russian oil industry. The first is the imposition of an embargo on the supply of oil and petroleum products from Russia in 2022, which is why it had to restructure all logistics towards Asia. The second is the "cap" of the oil price from Russia. All subsequent packages did not fundamentally change anything, they just detailed the fight against the "shadow fleet".

The 18th EU package, if adopted in the form currently being discussed by the media, could become the third most important. This is affected by the accumulated effect of previous restrictions, so a floating "cap" will create a persistent problem for the Russian oil industry of losing part of its export revenue.

"The best way to counteract the new sanctions is to complete the full—fledged transition of the Russian oil industry to an independent financial and logistics infrastructure. Here I would like politicians to move from words to action and start testing and actually using mutual payments among the BRICS countries (after all, there are the main buyers of Russian oil there). If this task is solved promptly, then the effect of pressure from the 18th EU package will be significantly reduced," Alexey Gromov concluded.