FRANKFURT, Germany (AP) — Western governments are seeking to cap the price of Russian oil exports in an attempt to curb fossil fuel revenues that support Moscow’s budget, its military and its invasion of Ukraine.

The restriction is due to take effect on December 5, the same day the European Union imposes a boycott of most of Russia’s oil — its crude, which is shipped by sea. The EU was still negotiating what the price ceiling should be.

The twin measures could have an uncertain impact on the price of oil, as concerns about the loss of supply through the boycott compete with concerns about reduced demand due to a global economic slowdown.

Here are the key facts about price caps, EU embargoes and what they could mean for consumers and the global economy:

WHAT IS LIME PRICING AND HOW WILL IT WORK?

US Treasury Secretary Janet Yellen has proposed imposing a cap on other G7 allies as a way to limit Russia’s income while keeping Russian oil flowing into the global economy. The goal is to damage Moscow’s finances while avoiding a sharp spike in oil prices if Russian oil is suddenly withdrawn from the world market.

Insurance companies and other firms needed to ship oil will only be able to deal with Russian crude if the price of oil is equal or lower. Most insurers are based in the EU or UK and may be required to participate in the cap. Without insurance, tanker owners may not want to take Russian oil and face obstacles in its delivery.

HOW WILL OIL FLOW INTO THE GLOBAL ECONOMY?

Universal enforcement of the ban on insurance, imposed by the EU and Britain in previous rounds of sanctions, could take so much Russian crude off the market that oil prices would spike, Western economies would suffer, and Russia would gain increased revenue from any oil it could ship in defiance of the embargo.

Russia, the world’s second-largest oil producer, has already diverted most of its supplies to India, China and other Asian countries at cut prices after being shunned by Western customers even before the EU ban.

One goal of the cap is to provide a legal framework “that will allow Russian oil to continue to flow while reducing windfalls for Russia,” said Claudio Galimberti, Rystad Energy’s senior vice president of analytics.

“It is very important for global crude oil markets that Russian oil finds markets to sell after the EU ban comes into effect,” he added. “In the absence of that, world oil prices would skyrocket.”

WHAT EFFECT DO DIFFERENT CAP LEVELS HAVE?

A cap of between $65 and $70 per barrel could allow Russia to continue selling oil and still maintain its revenues at current levels. Russian oil is trading around $63 per barrel, which is much lower than the international Brent standard.

A lower limit of around $50 a barrel would make it difficult for Russia to balance its budget, with Moscow believed to need $60 to $70 a barrel, the so-called “fiscal break-even.”

However, that $50 cap would still exceed Russia’s production cost of $30 to $40 a barrel, giving Moscow an incentive to keep selling oil simply to avoid capping hard-to-restart wells.

WHAT IF RUSSIA AND OTHER COUNTRIES DON’T GO?

Russia has said it will not comply with the ban and will stop shipping to countries that do. A lower limit of around $50 is more likely to trigger such a reaction, or Russia could cut off its last supplies of natural gas to Europe.

China and India may not agree to the restriction, while China could set up its own insurance companies to replace those banned in the US, UK and Europe.

Galimberti says China and India are already enjoying the oil discount and may not want to push Russia away.

“China and India get Russian oil at a huge discount to Brent, so they don’t necessarily need a price cap to continue enjoying the discount,” he said. “By following the G-7 limit, they risk alienating Russia. As a result, we believe that price compliance will not be high.”

Russia may also resort to schemes such as ship-to-ship shipping of oil to disguise its origin and mixing its oil with other types to circumvent the ban.

So it remains to be seen what effect the cover will have.

And EU EMBARGO?

The biggest impact of the EU embargo may not be felt on December 5, when Europe finds new suppliers and Russian barrels are diverted, but on February 5, when an additional ban on refined petroleum products such as diesel comes into effect in Europe. effect.

Europe will have to turn to alternative supplies from the US, the Middle East and India. “There will be shortages and that will lead to very high prices,” Galimberti said.

There are still many diesel cars in Europe. Fuel is also used for freight transport to deliver a wide range of goods to consumers and to run farm machinery – so these higher costs will be spread across the economy.

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