Europe has relied on Russian energy since the invasion of Ukraine. But that will change later this year when Russia faces a price cap on crude oil exports.
The world’s leading economies are moving closer to dealing the most lethal blow to Russia’s oil industry since the start of the war in Ukraine, setting up a risky confrontation that could reshape the European energy market as tensions mount between Moscow and the West.
Europe has continued relying on Russian energy products since the invasion, even though revenue from the sale of oil and natural gas has helped fund President Vladimir Putin’s war effort. The delicate balancing act will be upended later this year, however, when the Group of 7 nations finalizes a plan to place a cap on the price of Russian crude oil exports.
The move is intended to limit Moscow’s profit margin in the short-term, while ensuring Europe is not cut off from a vital energy source overnight as the EU navigates a years-long shift away from Russian fossil fuels. The price cap would work in tandem with an EU ban on seaborne crude oil exports from Russia set to take effect on December 5, and a separate ban on refined oil products slated for early next year.
But it’s unclear what Russia’s response will be. Moscow has threatened to stop selling its oil to nations that comply with the unprecedented price cap, a move that would roil the global energy market and could raise gas prices in the U.S. and elsewhere.
« It’s a question of who blinks first, » said Lauri Myllyvirta, the lead analyst for the Centre for Research on Energy and Clean Air (CREA), a think tank based in Finland.
« The price cap is a very smart idea, » Myllyvirta said. « It’s a measure that’s needed in order to put maximum pressure on Russia, But it’s contentious. The stakes are very high. »
The moment represents a tipping point for Europe, with the potential to change decades of energy policy and impact Russia’s ability to carry out its war in Ukraine.
Russia’s economy, which relies heavily on revenue from oil and gas exports, has been crippled by sanctions put in place by the U.S. and its allies. But up until now, President Joe Biden and European leaders have avoided leveling sanctions that would severely impact Russia’s energy exports, allowing oil and gas to keep flowing through much of the year.
« We’re really going after Russia’s biggest whale, » said Olga Khakova, the deputy director for European energy security at the Atlantic Council. « The price cap would put Russia into a much bigger financial strait than it’s already in.
