by Federico Fubini
The proposal will be tabled in Brussels on Wednesday. Washington is ready to take revenge on anyone in the world who should buy from Moscow at higher values
A document is on the table in Brussels on Wednesday, according to which nothing will be the same again in the economic war between Russia and the West, which is running parallel to the one in Ukraine. Neither for the European Union, nor for the United States, nor for Russia, nor for the rest of the world. Formally, it is a proposal from the EU Commission to governments to reduce revenues from Russian oil in the European Union. For the first time, an economy that accounts for nearly 15% of world crude oil imports will seek to target the second largest exporter. Whatever the outcome, the consequences are bound to reverberate everywhere.
A total Brussels embargo could cost the Russian economy up to $200 billion a year in revenue, including the refined product. At least temporarily, the blockade would take about 5% of world exports off the market, leaving the first economy on the planet hunting for other supplies for the rest of the world. Crude oil and fuel prices would rise for everyone, even in the United States, to the point where they would embarrass Joe Biden’s Democrats in the midterm congressional elections this fall. It is no coincidence that the US government, along with Treasury Secretary Janet Yellen, has been urging Europe to be cautious in recent days. Therefore, the mechanism was developed confidentially between Brussels and Washington to be proposed to the 27 governments later in the week. Certainly not allowed. But its mere appearance at the negotiating tables is destined to send a wave of shock to all oil-producing countries, to China and to other governments that now maintain an open stance towards Moscow.
The Brussels proposal puts a predetermined cap on the price that the European Union is willing to pay Russian producers for its oil. It would be significantly lower than both the international market prices and the discount prices at which importers of Ural oil are now trading. But such a mechanism would be impossible to impose on a product that is largely transported freely by ship (only Germany, Austria, Hungary and Slovakia receive some of Russia’s crude oil via pipelines). Siberian producers could always divert their casks to the rest of the world, to countries that don’t apply European sanctions and are willing to pay a higher price. Only the United States, Britain and Canada practice a total embargo on Vladimir Putin’s black gold, but China, India, Latin America and African countries remain open.
This is where Biden’s support for European sanctions comes in: the Washington administration would threaten to cut off any state or company in the world that buys Russian oil at prices above the caps set by the Union from doing business with American companies and markets. The reduced prices for Putin decided in Brussels would thus become world prices for Russia. Everyone should adapt in order not to lose access to the largest global superpower. This leads to an increasingly decisive use of economic power for strategic pressure. The United States has already imposed similar restrictions on European companies doing business in Iran. But the same scheme on a global scale against a country the size of Russia on a strategic product like crude oil would be a qualitative leap. It would certainly allow Europe to continue getting crude oil from Moscow, which would reduce payments. But the reaction in the rest of the world – China, India, OPEC countries – remains to be seen. For this reason too, it has not yet been said that the Brussels proposal will be examined by the European governments. Other, milder ideas could prevail: one of them only envisages a slow and gradual reduction in imports.
Meanwhile, the Russian offensive in Donbass is threatening part of Russia’s gas supplies to Europe and Italy. The military from Moscow yesterday occupied a crossing of the pipeline in the Lugansk area, through which a third of the methane flows west. Ukraine is now threatening to cut transit, which could be shifted to other routes.
April 23, 2022 (Change April 23, 2022 | 22:39)
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