The war in Ukraine continues affecting the globe with alarming rise in energy prices, as the soon-to-be imposed sanctions on Russian oil will further disrupt the supply.
In June this year, the 27-member European Union (EU) had agreed to ban the purchase of crude oil from Dec 5 – a move aimed at drastically cutting Russia’s revenue in a bid to drain the Kremlin’s war chest.
However, the G-7 went for setting a price cap in September for the Russian oil amid concerns that a complete ban would send crude prices soaring.
But CNBC in a report says analysts believe that the upcoming sanctions are set to be “really disruptive” for energy markets if EU fails to set a cap on prices.
An outright ban on Russian imports could be “really disruptive” to markets, says Henning Gloystein of Eurasia Group.
The potential for rising oil prices is “why there’s pressure from the US” to agree on a cap, he informed CNBC.
A price limit would see G-7 nations buy Russian oil at a lower price, in an effort to reduce Russia’s oil income without raising crude prices across the globe. However, the EU nations have been in dispute for several days over the right level to cap prices.
Poland, Estonia and Lithuania – most vocal supporters of Ukraine – refused to agree with the proposal discussed earlier this week to set the price cap at $62 a barrel, saying it was too high to dent Russia’s revenues.
Rob Jetten, the Dutch energy minister, said, “If you want effective sanctions that are really hurting the Russian regime then we need this oil cap mechanism. So hopefully we can agree on it as soon as possible.”
On Wednesday, Russian oil traded at about $66 a barrel with Kremlin saying they would not sell their oil to countries implementing the cap.
They’re hoping that other major buyers — such as India and China — won’t agree to the limit and so will continue to purchase Russian oil.
Both China and India have increased purchasing Russian oil after Moscow’s invasion of Ukraine, benefiting from discounted rates. Their participation is seen as essential if the restrictions on Russian oil are to work.
But it is not likely to happen. India’s Petroleum Minister Shri Hardeep S Puri in September said he had a “moral duty” to his country’s consumers. “We will buy oil from Russia, we will buy from wherever,” he added.
As such, there are growing doubts about the true impact of the restrictions on Russia with experts like Guntram Wolff, director at the German Council on Foreign Relations, describing these as “too late and too timid”.
“This is just a continuation of an unfortunate series of timid decisions. The longer and later the sanctions come, the easier it will be for Russia to circumvent them.”