Europe caps Putin’s profits on OPEC oil cuts

The European Union decided on Thursday to put in place a long-debated price cap on Russian oil exports to limit potential Russian profits from a recently announced 2 million barrel per day production cut by OPEC+. , the cartel of oil-producing countries that virtually controls world oil prices. .

The price cap – which comes with a slew of new EU sanctions – would be implemented throughout the winter and, in theory, would seek to further reduce Russia’s revenue from food exports. oil while allowing Europe to meet part of its existing energy demand.

According to national economic data, the vast majority of the Russian government is funded by oil and gas export revenues. And member countries of the European Union, especially those in the east of the continent, are among the country’s biggest customers.

Although the EU has already banned Russian oil imports by sea, the proposed cap would allow Russian oil to be transported to EU affiliates at a price predefined by the EU’s 27-member coalition, potentially increasing a blow to the country. ability to finance its ongoing war in Ukraine while maintaining stability in global energy markets as the cold winter months approach.

The EU move was backed by many of its member countries as a way to cripple the country’s ability to wage war in Ukraine as its military’s resolve has reportedly begun to wane and the Kremlin has increasingly sought arms and ammunition outside its borders. .

Saudi Energy Minister Abdulaziz bin Salman gestures during a news conference after the 45th Joint Ministerial Oversight Committee and 33rd OPEC and non-OPEC ministerial meeting in Vienna October 5. The European Union decided to implement a price cap on Russian oil exports on Thursday to limit potential Russian profits from a recently announced OPEC+ production cut.
Vladimir Simicek/AFP via Getty Images

Craig Kennedy, an expert on Russia’s energy history, suggested at the start of Russia’s invasion of Ukraine that its oil industry was the country’s Achilles’ heel in the conflict, while others Experts have suggested that Russia is unable – or simply cannot afford – the cost of a substantial production cut in an attempt to reduce the effects of the price cap.

While Russian Deputy Prime Minister Alexander Novak told Bloomberg News on Wednesday that a potential Russian oil price cap could lead to a temporary drop in the country’s output (a move that could lead to further supply shortages and a sharp increase in prices in the West), the Center for Strategic and International Studies noted in September that the Russian oil industry already has limited storage capacity and that the shutdown of production in the oil fields of Western Siberia could freeze equipment and damage its existing oil infrastructure.

Meanwhile, the United States government has already begun weighing its own sanctions in an attempt to deter OPEC’s decision, including law Project to withdraw US missile defense systems and troops from Saudi Arabia and the United Arab Emirates, where the US has maintained a presence as a bulwark against hostile countries like Iran.

Ultimately, the decision expected this week by OPEC+ – of which Russia is a part – to cut supply could be seen less as a counterbalance to the West than as a strategic decision to support the economic interests of their members. , says Nikolay Kozhanov, a research associate professor at the Gulf Studies Center at Qatar University and a non-resident scholar of the Middle East Institute’s Economics and Energy Program.

“OPEC+ continues to rely primarily on the psychological effect of its moves,” Kozhanov said. Newsweek in an email. “Of course, we have to see how the cuts in production quotas will be distributed among cartel members, but, for now, it looks like OPEC+ is just trying to scare the market.”

“These cuts are also not a pro-Russian decision,” he added. “Each player plays his own game. No friendship or obligations.”

OPEC+ members have previously sought to take advantage of discounted Russian crude oil to create refined products which they then export themselves. It’s also unclear where the production cuts will come from, suggesting that the announcement of production cuts could be seen more as a way to ensure its relevance in the coming year, especially more so that consumer prices of products like petrol and diesel remain high.

“What’s really important here in practical terms is that OPEC+ has extended its existence until 2023,” Kozhanov added. “This means: a. OPEC+ believes that the market will be unstable in 2023; b. Moscow will still be valid as a partner; c. The OPEC+ agreement remains in the eyes of its members a factor that shapes the market “.

The news had no immediate impact. In the United States, oil prices on the West Texas Intermediate fell 19 cents a barrel, while gas prices were down less than a penny on Thursday morning.