What will happen if Russia freezes oil prices?
The G-7, European Union (EU) and Australia jointly fixed the price of Russian oil at $60 per barrel last Friday. This decision will be effective from February 5. Earlier in May, the EU imposed a ban on Russian crude oil imports by sea. The ban also came into effect from yesterday Monday. EU companies that insure and finance ships engaged in Russian oil deliveries around the world will also be subject to the ban. However, there will be no ban on Russian oil supplied through the pipeline. Al-Jazeera has published an analysis of five cases on what the impact of the ban and oil price cap could be. According to the report, through the Druzhba oil pipeline launched in 1964, Russian oil is supplied to many countries in central and eastern Europe including Germany, Poland, Hungary, Slovakia, Czech Republic, Austria. Germany, Poland and Austria have already supported the ban. The countries have pledged to completely stop importing oil from Russia by the end of this year. Hungary, the Czech Republic, Slovakia and Bulgaria are still dependent on oil supplied by Russian pipelines. These countries will be temporarily allowed to import oil from Russia until alternative arrangements are confirmed. According to the statement of the European Commission, these oils imported through the pipeline cannot be sold again in EU countries or outside the EU.
What will affect the EU oil market?
Before the start of the Russian offensive in Ukraine, the 27-member alliance was heavily dependent on Russian oil. In 2021, the European Union imported crude oil and refined energy products worth $7,480 million from Russia. According to the International Energy Agency (IEA), the EU imports 2.2 million barrels of crude oil per day from Russia. Of this, 7 lakh barrels of oil are supplied daily through pipelines. Besides, 12 lakh barrels of refined fuel products are also supplied per day. The IEA also said the EU must now find alternatives for 1 million barrels of crude oil and 1.1 million barrels of energy products per day. About 10 percent of oil imports from the Druzhba oil pipeline will continue temporarily. Mats Cuvelier, a Brussels-based lawyer with experience in the European Union and international trade, spoke to Al-Jazeera. He believes that EU sanctions on Russian oil will not have a major impact on supply and demand in the short term. Mats Cuvelier said, discussions on this rule have been going on for six months. This has given the European Union countries enough time to find alternative ways of supplying oil. Philip Losberg, an energy policy analyst at the European Policy Center, echoed the same sentiment. He believes that the biggest impact of the ban on oil imports will be on the price of oil. Oil prices will rise. Brent oil will become very expensive, he told Al-Jazeera. The European Union must be prepared for this. On the same day that Russian oil prices were fixed, the price of oil in the world market increased by 2 percent. But Losberg said the slowdown in the global economy will reduce international oil demand in the coming months. This will reduce the price of oil once again.
What will happen to oil vessels that depend on EU financing and insurance?
EU companies that used to insure and finance the shipping of Russian oil to third countries by sea will also be hampered by oil price caps and oil import bans. Philip Losberg, an energy policy analyst at the European Policy Center, believes that it will make it difficult for Russia to continue exporting crude oil and energy products to the rest of the world. Many ships from India, China and other countries are insured by European and UK companies. These ships now have to comply with the rules developed by the EU, G-7 and Australia. The ban will not apply to Russian oil delivered through pipelines The ban on Russian oil delivered through the pipeline will remain in place: Reuters file photo However, Russia says that these rules are not recognized under its existing laws. It remains to be seen how the Kremlin plans to continue exporting oil to these countries under these new rules, Losberg said.
What about Russia?
The IEA says Russia's oil exports could fall by 1.4 million barrels a day next year if the EU's ban on crude oil imports from Russia by sea goes into effect. Mats Cuvelier, a Brussels-based lawyer with experience in the European Union and international trade, believes that Russian ships can try to avoid these sanctions by registering with the Marshall Islands or Liberia or removing the Russian flag. However, to ensure that such a situation does not happen, the EU has strengthened maritime security. What will be the impact on countries outside the scope of the rule? Countries like India, China and Turkey depend on Russian oil. These countries will continue to import oil from Moscow. Vivek Mishra, a fellow at the Observer Research Foundation, a New Delhi-based research institute, told Al-Jazeera that Russia could negotiate with major buyer countries like India and China and introduce a currency exchange system. Read the full article
