Price cap on Russian oil is experimental, but Russia won’t get away unscathed, Northeastern expert says

Oil tanker in body of water
An oil tanker is moored at the Sheskharis complex, part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia, on Oct. 11, 2022, one of the largest facilities for oil and petroleum products in southern Russia. AP Photo, File

The price cap imposed by the European Union, the Group of Seven leading industrial nations and Australia on seaborne Russian crude oil is an unprecedented diplomatic measure, a Northeastern University expert says, but it might be followed by a more complete embargo in the future.

“Each round of sanctions [against Russia] is hard fought, and it’s quite impressive that they are able to negotiate through this. It is testimony to the scale of their diplomatic apparatus to continually reach new and fresh and more intensive rounds of agreement on sanctions while still having very different relationships to Russia,” says Mai’a Cross, dean’s professor of political science, international affairs and diplomacy and director of Northeastern’s Center for International and World Cultures.

The $60-per-barrel price limit, designed to curtail Russia’s profits from selling oil, as well as a full import ban on Russian seaborne crude oil to the EU, went into effect on Dec. 5. Russia made about $74 billion from exporting crude oil and refined petroleum products to the EU last year, according to Deutsche Welle.

Headshot of Mai'a cross (left) and Nada Sanders (right)
From left to right: Northeastern’s Mai’a Cross, dean’s professor of political science, and Nada Sanders, distinguished professor of supply chain management. Photos by Alyssa Stone/Northeastern University and Adam Glanzman/Northeastern University

On Dec. 7 the EU announced the ninth round of sanctions, proposing to add almost 200 individuals and entities to the sanctions list; introduce sanctions against three additional Russian banks; impose new export restrictions; cut Russia’s access to all sorts of drones and unmanned aerial vehicles; and ban exports of drone engines to Russia and export to any third countries, which could supply drones to Russia.

Oil has always been the hardest target for sanctions by the EU countries and the West, Cross says, because some countries have been very dependent on it. That is why other areas of the economy and energy were sanctioned first.

“Finally, now they’re getting to oil,” Cross says. 

She believes that this gesture is not merely symbolic, but a first step along the road to creating a comprehensive embargo on Russian oil. In June, when the EU countries agreed on the December ban of imports of seaborne crude oil, they said that a ban on refined oil products would take effect on Feb. 5, 2023.  

“This entire episode of sanctions and ratcheting them up vis-a-vis Russia is unprecedented,” Cross says. “The EU and Western countries have come together in a way that is quite noteworthy, because it’s something that actually directly affects their own self-interests, their own economic well being.”

The European countries had to prepare for the oil ban, stockpiling energy resources for months to ensure they can make it through the winter, she says. The EU is hoping that other global supplies of oil will come onto the market in the medium term.

“There was clearly a very concerted strategy to get ready for the winter,” Cross says.

But it is not going to be easy—Europeans will need to ration expensive energy in the coming months, conserve heat, turn off lights during the day and so on.

Some European countries, like Bulgaria and Croatia, will still be allowed to import Russian crude oil and petroleum products via maritime transport. Once the EU finds a way to help them wean themselves of that source of oil, it can introduce a more complete embargo, Cross says. 

“More can clearly be done. And one indication of that is the fact that the $60 cap pretty much matches up with the market prices right now,” she says.

The decision to set the cap at $60 took into account the plight of the low and middle income countries around the world who rely on Russian oil. It maintains affordability and aims at creating stability on the oil market where prices could shoot up due to shortage of supply, Cross says.

“It’s a bit experimental in that the G-7 and the EU are trying to assess what the effect will be before they take further measures,” she says. “They don’t know what the effect will be of this price cap.”

The current EU ban also prohibits shippers from insuring and financing the transport of oil to third countries through maritime routes. This clause is supposed to make it particularly difficult for Russia to continue exporting its crude oil and petroleum products to the rest of the world since EU operators are important providers of such services.

Nada Sanders, distinguished professor of supply chain management at Northeastern, says that Russia might still find ways to circumvent these oil export sanctions.

“Russia’s oil can end up in other blends on the market,” she says, and it will be difficult to determine which part of the blend was supplied from Russia.

The EU and G-7 price cap will also affect global supply chains, delaying shipping and creating backlogs, Sanders says, as there will have to be checks and enforcement of the new rules along the way. 

Cross believes Russia won’t get away unscathed from the EU’s weaning itself of its oil. In case Russia ignores the price limit or tries to get around it, the countries participating in this measure will have to reevaluate it and quickly adjust. 

“If it’s not having the intended effect, which is to really squeeze Russia on selling oil, or if it’s too destabilizing for the countries that count on some supply of oil, then they will have to change the strategy,” Cross says.

“Ultimately, this is about trying to deplete Russia’s funding for this war. Clearly, what we are seeing [shows] there is no fatigue when it comes to the EU and the G-7 working hard to find an end to the war.”

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