Why is the gradual decrease of the price cap to $30 per barrel of Russian oil justified? Razom We Stand and the Centre for Energy and Clean Air Research - CREA (Finland) explain why the EU and G7 should be setting a price cap on Russian oil at a level no higher than $50-$60 from December 5 with a gradual decrease in the following months.
Razom We Stand and the Centre for Energy and Clean Air Research - CREA (Finland) explain why the EU and G7 should be setting a price cap on Russian oil at a level no higher than $50-$60 from December 5 with a gradual decrease in the following months.
Russia's profits from fossil fuel exports fell below last year's level only in October
After a full-scale invasion due to increased demand for fossil fuels, global price increases played into Russia's favor, with average export prices for Russian oil and gas averaging 60% higher than last year. Russia's revenues increased despite the fact that many countries began to avoid supplies from the terrorist state and its exports gradually decreased. Russia continued to receive excess profits for many months.
This led to the fact that only in October of this year Russia's revenue from fossil fuel exports to the EU fell below the 2021 level for the first time. Despite all the restrictions and sanctions at the level of the governments of individual countries, Russia continued to receive 700 million+ daily from the export of fossil fuels. These funds are enough to continue financing the war in Ukraine. The income from the export of fossil fuels during the first 100 days of the war amounted to about €100 billion. And according to the words of the Minister of Finance of Russia Anton Siluanov, these surplus profits were used to finance the war in Ukraine.
Price cap had to be introduced at the beginning of summer
According to CREA estimates, Russia earned an average of €728 million per day from July 1 to the end of October from the sale of fossil fuels at market prices. Those revenues could fall by about 18%, to €595 million a day, if price caps were to be in place from July 1 to deprive Russia of excess profits. Moreover, setting price caps close to short-term price caps, a riskier approach given the incentives to divest from fossil fuels, could reduce revenue by 23% to €563 million. But the price cap is only scheduled for December 5, so Russia has already taken advantage of market disruption and collected extra earnings.
What should be the price cap today?
About $50 per barrel with a gradual decline to $30. Already today, due to weakening demand for fossil fuels in Europe and uncertainties at global markets, the price fell to $66 per barrel. European leaders are considering a price range of $60-70, that is, almost at the level of market prices. Even such a rather high price cap will no longer allow Russia to take advantage of possible market volatility and spikes in demand, but if it had been adopted at the beginning of summer, it would have had a better effect. Today it is already necessary to consider the price cap lower than the market price - about $50 and in the next few months to reduce it to the level of the cost - $30-40.
This should force Russia to lower tax rates for its oil and gas industry. The less oil and gas taxes Russia collects in the budget, the less funds there will be for the continuation of the war in Ukraine. The next step should be to expand the sanctions to all russian fossil fuels and apply secondary sanctions to close the loopholes, because we are already seeing how Russia is searching for new ways to sell its fossil fuels circumventing the sanctions. In particular, deliveries of Russian LNG to the EU increased by almost 10% in October, and Turkey became a new outlet for Russian crude oil by providing processing and logistics of petroleum products to the EU and US markets.
Now it is vitally important to ensure that the oil and gas sanctions against Russia are effective and prevent excess profits or the possibility of their circumvention.
21 February 2024, for immediate release
Open letter to G7 and European Union leaders
For Immediate Release
The potential candidate is responsible for campaign planning and execution in the area of ending fossil fuels addiction and building ground for accelerated renewable energy transition.
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