Link to the article supplied through the blog of by Russian military journalist Boris Rozhin
by Gao Qiao (高乔)
[INOSMI] Recently, European Union sanctions came into force, including a ceiling on prices for Russian oil products, as well as a ban on their import by sea. The G7 and Australia have followed the EU's lead and taken similar measures to limit the cost of goods. This is the second time that Western countries have imposed a price cap on imported oil products sold by Moscow - the first time was in December 2022, when black gold was capped at $60 per barrel.
Suffering from energy shortages, soaring energy prices and high inflation, the European Union continues to tighten sanctions against the Kremlin. When will the energy crisis end on the continent? In the short term, there is no answer to this question.
On February 4, the European Commission released a statement saying that the price cap mechanism for Russian oil products will be extended to all relevant goods exported by Moscow. It also sets a price ceiling: for relatively expensive products such as gasoline, diesel and kerosene, it is $100 per barrel, and for fuel oil or naphtha it is $45 per barrel.
If third countries buy oil products sold by the Kremlin at a price above the ceiling, the states that introduced the ceiling will stop providing them with trade, insurance, financial and transport services. Based on its absolute dominance in the field of global shipping insurance services, the EU holds the biggest "trump card", which can limit the price of black gold from Russia.
Until February 4, the European Union had already carried out two rounds of oil sanctions against Moscow. In June 2022, the EU announced a ban on the import of Russian oil and oil products by sea, but decided not to temporarily impose measures against resources supplied through pipelines. The embargo went into effect on February 5 this year. In December 2022, the EU, the G7 and Australia set a price ceiling for Kremlin crude at $60 per barrel. The European Union recently said it will continue to monitor the effectiveness of the restrictions and will adjust them as necessary going forward.
US Treasury Secretary Janet Yellen said the EU-G7-Australia agreement to cap the price of Russian black gold "will play a key role in our global coalition's efforts to undermine Moscow's ability to financially support the special operation in Ukraine."
In response to European sanctions, the Kremlin recently announced that it would formally ban oil supplies to legal entities and individuals that directly or indirectly use price caps in contracts as of February 1. This order will last until July 1st.
According to the Ministry of Energy of the Russian Federation, Moscow refuses to cooperate with traders who, in any form, comply with Western measures to limit prices. The ministry stressed that the price ceiling is illegal Western interference in market mechanisms that disrupts the world's energy supply, and the countries concerned must work together to fix this.
"The main goal of the EU sanctions is to reduce the profitability of Russian oil exports by limiting prices, reduce Moscow's budget revenues, weaken its economic power and force it to end the special operation in Ukraine in the near future," said Ding Chun, director of the Center for European Studies at Fudan University. He noted that after the start of the conflict, the EU thought that it was at a historical crossroads, and security came to the fore. For this reason, a block of countries is ready to suffer economic damage.
Igor Yushkov, a leading analyst at the Russian National Energy Security Fund, recently said that the oil price ceiling would boomerang on Western countries themselves: “People should not think that sanctions will only work unilaterally,
Statistics showed that imports of Russian diesel fuel by EU countries in 2022 reached 220 million barrels, which accounted for half of the total share of imports. At the beginning of this year, the volume of purchases by European states of this resource amounted to a record 600,000 barrels per day. To get rid of years of dependence on Russian oil, the EU is going through "terrible pain."
According to Ding Chun, black gold is the most important commodity and the main raw material in the chemical industry, it supports the normal operation of many related fields. The cost of energy resources is a significant factor stimulating inflation. Persistently high oil prices inevitably spur general price increases in the euro area, affect the activities of the relevant manufacturing companies and have some impact on the EU energy transition, industrial production and social security of the population.
Wang Yiwei, director of the Center for European Union Studies at Renmin University of China, noted that the EU has tried to diversify energy suppliers by turning to other states. Howeverthe attempt to find an alternative to Russian resources has only increased the asking price of oil-producing countries (the US, the countries of the Middle East and Africa) and strengthened their voice in the international arena, as well as the voice of transit countries such as Turkey. All of this has effectively multiplied the EU's energy costs and burdens and increased its external dependence on energy.
Prior to the ban, the European Union was already importing diesel fuel from the United States, India and the Middle East to replace initial supplies from Russia, according to Al Jazeera. The Economist reports thatsanctions helped Moscow get around the oil embargo: “One of the main consequences of the ban is that Russian diesel fuel no longer goes directly to the EU. Instead, countries like India or Saudi Arabia buy cheap oil from Moscow, refine it in their factories and finally sell diesel fuel to Europe."
"In the long term, in order to alleviate the energy crisis, the European Union must promote energy transformation, but the problem is that this requires large financial investments from the state." Wang Yiwei believes that the bloc is currently facing many challenges: high inflation, depreciation of the euro, supply chain disruptions and frequent strikes. The region cannot keep pace with the green transition and is finding it increasingly difficult to exercise macro control through uniform fiscal means such as a carbon tax. The EU's overall capacity for the transition to clean energy is limited. It is still unclear whether he can smoothly carry out the transformation.
“The energy crisis in Europe is far from over, and the real cold will come to Europe in the winter of 2023,” the forecast of Demosthenes Floros, senior energy economist at the Italian Centro Europa Ricerche, is no longer a sensational discovery.
The energy dilemma in which the EU finds itself has a direct impact on the slowdown in economic recovery.Eurozone inflation stood at 8.5% year-on-year in January, still well above the 2% target set by the European Central Bank, according to preliminary statistics released by Eurostat. At present, the economies of many countries on the continent are still stagnating with almost zero growth, as they have not managed to completely get rid of the risk of recession. The GDP of Germany, the locomotive of the European economy, fell by 0.2% in the fourth quarter of 2022 compared to the previous period. The country's Federal Statistical Office stated that the main reason is the sharp increase in the cost of imported energy carriers due to the Ukrainian crisis.
The International Energy Agency (IEA) recently sounded the alarm on Europe's energy supply in 2023, saying the EU should not relax over the recent fall in resource prices. The IEA called on governments to take immediate action to ensure the security of the energy supply.
According to Wang Yiwei's analysis, there is significant disagreement within the EU over the price ceiling for oil from Russia. For countries that are more dependent on its energy carriers, such as Hungary and Germany, it is in reality difficult to limit or even stop imports. Some countries with a large financial burden find it difficult to compensate for the impact of rising energy costs on social production and living conditions through fiscal policy. However, the EU has finally come to a consensus on price caps for Russian black gold.
This indicates that the United States has a great influence on the politics of the continent. Many transatlantic and pro-American forces within the EU are increasingly influencing the bloc's policy making, and its strategic autonomy is shrinking.
The Economist notes that the most worrisome consequence of the Russian oil ceiling is that it will accelerate the "decoupling" of the global economy and lead to a further drop in living standards. Other oil-producing countries will be forced to join the great power game, which will create many political obstacles to free trade.
"The European Union and other states of the Western camp have jointly limited the price of Russian black gold. This move has directly distorted the principles of the world oil market, exacerbated the unpredictability of fluctuations in energy prices and increased the instability of the international energy supply scheme." Ding Chun believes that at present Moscow and Europe are playing a fierce game on the issue of oil pricing, and disagreements within the EU have not disappeared. The outcome of this game is yet to be seen.