12/14/2023 0 Comments Price spike meaningSecond, will Asian buyers get on board? Currently, India and China are enjoying considerable discounts for Russian crude and can purchase as much as they like. President Vladimir Putin may bet that cutting off Russian oil will panic the market, creating a price shock that will weaken Western resolve. But it seems presumptuous to assume Russia will accept far lower prices. They note that Russia has limited storage capacity and that halting production in Western Siberia could freeze equipment and damage its oil infrastructure. Supporters of the idea argue that this is a bluff. First, how will Russia respond? It has already threatened to withhold oil from countries joining the price cap. There are at least four big challenges for the price cap. Many details remain uncertain, and the terms have to be agreed before December 5, when EU sanctions take effect. For now, there are no plans to impose secondary sanctions to force countries to participate. These services would become more scarce and more expensive. Unauthorized trade above that price would require buyers to seek brokering, shipping, insurance, and reinsurance from outside the participating countries. Under the proposed plan, shippers and insurers would have to prove they are supporting Russian oil trade at or below the price cap. Treasury officials suggest the EU embargo could reduce Russia’s exports by three to five million barrels per day, which would trigger a massive price spike. Crucially, the sanctions also ban EU companies from providing shipping insurance, brokering services, or financing for oil exports from Russia to third countries. In June, the European Union imposed a sanctions package that will ban seaborne imports of crude oil as of December 5 and ban petroleum product imports as of Febru(with some exceptions). The United States has pushed for the price cap in response to the European Union’s risker plan to ban Russian oil imports. It would cut but not decimate Russia’s oil revenue. But rather than set a new, globally recognized price for Russian oil, the cap is likely to create a multitiered price system. Most energy sanctions target export volumes, while this plan would cut prices. The goal is to keep Russian crude oil and petroleum products on the market to avoid a price spike, while depriving the country of essential revenues for its economy and its war machine. The G7 has confirmed its plans to impose a price cap on Russian oil.
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