[Asia Economy Reporter Kwon Haeyoung] Following the price cap on Russian crude oil, the West has begun setting price ceilings on refined petroleum products such as diesel and heavy fuel oil. The plan aims to further tighten the financial lifeline of Russia, which invaded Ukraine, through additional economic sanctions.
According to major foreign media including Bloomberg, representatives of EU member states are scheduled to hold a meeting on the afternoon of the 27th (local time) to discuss price caps on petroleum products sold at a premium over Russian diesel and crude oil. The day before, the European Union (EU) Commission proposed to member state governments a plan to set a price cap of $100 per barrel (approximately 123,000 KRW) for high value-added petroleum products sold at a premium over Russian diesel and crude oil. For low value-added products such as heavy fuel oil, a price cap of $45 per barrel (approximately 56,000 KRW) was suggested.
The price cap may change depending on the outcome of the meeting. For the price cap system to be implemented as proposed by the EU Commission, unanimous agreement among the 27 member countries is required. Agreement among the Group of Seven (G7) countries is also essential. The EU Commission aims to implement the price cap on Russian refined petroleum products by the 5th of next month.
The EU and G7 have been enforcing a price cap on Russian crude oil since the 5th of last month. The system stipulates that Russian crude oil can only be transported by sea using insurance services from American and European companies if it is traded below $60 per barrel. Experts predict that sanctions on refined petroleum products will have a greater impact on the Russian economy than those on crude oil.
On the other hand, there are observations that reaching consensus within the EU will not be easy due to Europe's high dependence on Russian refined petroleum products and the complex market situation. In this regard, U.S. Treasury Secretary Janet Yellen also mentioned that the market situation is complicated and the plan may not proceed as expected. On the 21st, Secretary Yellen stated, "(The price cap on refined petroleum products) is more complicated, but we are trying to find a way to set a broader cap on Russian crude oil to achieve our goals."
As sanctions on Russian oil expand, attention is also focused on future international oil price movements. The EU must simultaneously achieve the conflicting goals of tightening Russia's war funding while preventing supply shortages and price increases. Some member states are concerned about diesel supply shortages and the resulting price hikes. Earlier, Russia also warned that it might halt or reduce oil supplies in response to the West's price cap, which could cause international oil prices to soar.
Richard Bronzo, Geopolitical Head at energy consulting firm Energy Aspects, analyzed, "The introduction of the price cap may cause Russia to export petroleum products that cannot go to Europe to other regions," but added, "That does not mean Russia can find export markets to fully replace its previous supply. The $100 per barrel cap is not considered high."
Alan Gelder, Vice President at Wood Mackenzie, said, "This measure will hardly affect Russia's crude oil transportation and production," but added, "Trade will continue, but Russia's revenue is expected to decrease."
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