As the war in Ukraine drags on, the European Union is picking up arms against Vladimir Putin and his Russian army. Although not using traditional weapons such as tanks, guns, and missiles, the EU is hoping that weaponizing trade and capping the price of oil will aid Ukraine in winning the war before the cold harshness of winter sets in. So far, the jury is still out on whether this move will make an impact on the economy or on Vladimir Putin’s behavior with Ukraine.
A Decision Rendered
Earlier in the year, the United States and its Western allies agreed that they would create a price cap for oil, hitting Russia where it hurts in the hopes to stop the war. They also agreed to decide on the details by early December, though getting to the actual number has proven difficult, with Poland holding out until just this week.
The president of the EU, Ursula von der Leyen, said “Today, the European Union, the G7 and other global partners have agreed to introduce a global price cap on seaborne oil from Russia.” The EU hopes that this move will decrease Moscow’s bottom line while also balancing energy markets so EU-based operators can export the oil to third-party countries, as long as it is still priced below the cap. It will also fortify the Russian sanctions.
The 27 member states agreed on capping the price at $60 a barrel. Though much of the discussion had centered around $65 to $70 dollars a barrel, in the end the members realized that price point would not hurt the Kremlin as much as they wanted the sanctions to hurt. Estonia and Poland wanted the cap to be even lower, but finally capitulated so the sanctions could begin.
“Today’s oil price cap agreement is a step in the right direction, but this is not enough,” Estonian foreign minister Urmas Reinsalu tweeted Friday. “Intent is right, delivery is weak.”
There is a fine line to this game, however. If the EU slashes the price too low, Russia could come back at them by slowing output, which would cause turmoil in the markets. The EU agreement also adjusts the cap so it will always be 5% below the given market rate.
“We still believe that the price cap will help limit Mr. Putin’s ability to profiteer off the oil market so that he can…