EU 3 Countries: "Russia War Funding Oil Price Cap Should Be Lowered to the $50 Range"

Current Around $60, Russia's Oil Exports Continue
Increased Imports by China and India...Sanctions Effectiveness Declines

Poland, Lithuania, and Estonia, three European Union (EU) member states bordering Russia, have proposed lowering the price cap on Russian crude oil. They argue that the current price cap of $60 per barrel should be reduced further to cut off Russia's war funding, as Russian exports have not significantly decreased.

However, most European countries currently facing an energy crisis find it difficult to replace Russian oil, which accounts for about 30% of the oil market, and there are concerns about the effectiveness of the price cap as imports from China and India?countries that do not apply the cap at all?continue to increase.

[Image source=Reuters Yonhap News]

According to Bloomberg on the 14th (local time), EU member states plan to start a review meeting on the price cap for Russian crude oil, which has been in effect since December 5th, from the 15th. Poland, Lithuania, and Estonia have proposed lowering the cap to the $50 range. Bloomberg reports that these countries are advocating for a reduction of the cap to as low as $51.45 per barrel, which is more than 5% below the current $60.

The reason these countries are pushing for a lower cap is due to Russia’s persistent oil sales revenue. Russia reportedly earned over $13 billion (about 17 trillion won) from oil sales in January alone. Poland and the other two countries argue that if the cap had been lowered as proposed, this amount could have been reduced to $650 million.

When the price cap on Russian oil was first discussed in August last year, there was a hardline stance, mainly from Ukraine and Poland, that the cap should be lowered to the production cost of Russian Ural oil, which is in the $20 range. However, most European countries, concerned about an energy crisis ahead of winter, opposed a complete ban on Russian oil imports.

Although these three countries are advocating for a lower cap, lowering the cap requires unanimous consent from all 27 EU member states, making it unlikely that a reduction will be decided in this round of discussions.

Previously, the EU agreed to review the price cap on Russian crude oil every two months, but during the first review in January this year, the cap was maintained at $60. This was because the United States and major allies preferred to keep the cap at that level.

Some critics argue that even if the cap is lowered, its effectiveness diminishes as imports from countries like China and India, which do not apply the cap at all, continue to rise. Bloomberg noted, "According to India’s Ministry of Commerce, the average price of India’s Russian oil imports in January this year was $79.80 per barrel, much higher than $60," adding, "Currently, oil shipments to India and China are mainly carried out by smuggling fleets that do not require insurance from European insurers, making price control even more difficult."