Europe and the United States on Monday began imposing two of the toughest measures aimed at curbing Russia’s oil income, the main source of cash used to fund its nearly 10-month war in Ukraine. The first, a US-led price cap initiative, aims to increase economic pressure on the Kremlin, avoiding a global oil shock. The limit was set at $60 per barrel and was approved by the Group of 7 countries, Australia and members of the European Union. The second is an embargo under which European nations will no longer be able to buy most Russian crude from Monday. It was a step the European Union had agreed to months ago, but which was phased in with exceptions to allow member states to prepare. Prices traded in oil markets on Monday, with Brent crude, the international benchmark, up about 2.5 percent at $87.75 a barrel by midday in Europe. West Texas Intermediate was selling at $82 a barrel. No immediate impact on European oil supplies was expected, in part because the embargo has been in place for months and energy companies have already started buying more oil from the United States, Brazil, Guyana and the Middle East. Although analysts and traders say the price cap could prove a nightmare to manage, a sanctions expert said lengthy negotiations had led to a deal with the potential to work. “I suspect that the compromise that has been reached gives the policy the best chance of success,” said Edward Fishman, a senior fellow at Columbia University’s Center for Global Energy Policy. Mr. Fishman, who previously led the design and implementation of sanctions against Russia at the State Department, said there was plenty of reason to be optimistic. One is the recent softness in oil markets, which he interpreted to mean that Russian oil was no longer as critical to markets as it was a few months ago. He also said the agreed price of $60 was a “Goldilocks” level, not so high as to give Russia even more revenue than it currently receives or so low as to discourage Moscow from producing oil. He also said the cap’s provision to review the price level every two months, or more often if needed, provided the “flexibility” that has historically helped make sanctions, such as those targeting Iran’s oil sales, effective. However, skepticism about the potential effectiveness of the measures comes in part from the United States and European countries that are forcing European shippers and insurers to enforce it by refusing to handle cargoes priced above the $60-a-barrel level. For starters, analysts say, data on Russian oil pricing has become scarce in recent months. Few if any trades are being reported, and market-quoted prices are “mostly based on hearsay,” said Viktor Katona, an analyst at Kpler, a research firm that tracks shipping. Russia has said it will not accept a price cap and has threatened to cut off supplies to countries that comply with the deal. If Russia were to follow such steps and cut oil as it has natural gas flows to Europe, it could wreak havoc on oil markets. “These measures will undoubtedly have an impact on the stability of the global energy market,” Kremlin spokesman Dmitry S. Peskov said on Monday, according to Russian state news agency Tass, referring to the embargo and price cap. . Analysts say Russia has built a so-called shadow fleet of old tankers to export its oil and avoid EU sanctions, but they doubt it can muster a large enough fleet. If it can’t, Russia may have to start shutting in wells. The G7 countries – the United States, Canada, Britain, Germany, France, Italy and Japan – have already stopped buying Russian oil, so any problems with a reduction in Russian exports risk damaging the economies of countries such as China and India. major clients who refused to condemn Russia’s invasion of Ukraine. The looming embargo and price cap were the main reasons OPEC and its allies, including Russia, decided on Sunday to leave their oil production quotas unchanged. The group, known as OPEC Plus, appears to have decided there was no reason to change its policy amid several economic uncertainties, including a faltering economy in China and crippling inflation worldwide that are fueling recession fears. Many analysts believe that Saudi Arabia, the de facto leader of the producer group, is aiming for a price of around $90 a barrel for Brent crude. The Saudis, according to market watchers, would likely cut output, regardless of protests from Ukraine and its allies, if prices fall significantly from that level.
