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Western governments are aiming to cap the price of Russia’s oil exports in an attempt to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine.
The cap is supposed to take effect Monday, the same day the European Union will impose a boycott on most Russian oil — its crude that is shipped by sea. The EU was moving closer to a $60-per-barrel threshold, but negotiations were still underway Friday.
The twin measures could have an uncertain effect on the price of oil as worries over lost supply through the boycott compete with fears about lower demand from a slowing global economy.
Here is what to know about the price cap, the EU embargo and what they could mean for consumers and the global economy:
WHAT IS THE PRICE CAP AND HOW WOULD IT WORK?
U.S. Treasury Secretary Janet Yellen has proposed the cap with other Group of 7 allies as a way to limit Russia’s earnings while keeping Russian oil flowing to the global economy. The aim: hurt Moscow’s finances while avoiding a sharp oil price spike if Russia’s oil is suddenly taken off the global market.
Insurance companies and other firms needed to ship oil would only be able to deal with Russian crude if the oil is priced at or below the cap. Most insurers are located in the EU or the United Kingdom and could be required to participate in the cap.
HOW WOULD OIL KEEP FLOWING TO THE GLOBAL ECONOMY?
Universal enforcement of the insurance ban, imposed by the EU and U.K. in earlier rounds of sanctions, could take so much Russian crude off the market that oil prices would spike, Western economies would suffer, and Russia would see increased earnings from whatever oil it can ship in defiance of the embargo.
Russia, the world’s No. 2 oil producer, has already rerouted much of its supply to India, China and other Asian countries at discounted prices after Western customers shunned it even before the EU ban.
WHAT EFFECT WOULD DIFFERENT CAP LEVELS HAVE?
A $60 cap would not have much impact on Russia’s finances, said Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels.
