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That means that unlike the 1998 default, where the foreign holdings of GKO was worth some $40bn, this time round only about $8bn of foreign held bonds will be directly affected by this default.
2.19 How a price cap on Russian oil might work
Europe is scrambling to find alternatives to Russian crude oil, natural gas and coal. But the fact remains that despite recent cuts in the amount that the EU buys from Russia, Moscow’s revenues from hydrocarbon exports still surged 40% year on year in May, as noted in a recent study, owing to sky-high prices. This is even taking into account the fact that Russia’s Urals oil is trading at a steep $30 discount to Brent, because of sanctions and buyers shunning the product. At the same time, some EU member states have limited ability to make further reductions in volumes.
This is why a proposal is now gaining traction in Brussels and Washington to cap the price of Russian oil imports, depriving the Kremlin of revenue to finance its war in Ukraine. But this proposal could prove tricky to implement and could have significant negative implications for the global economy.
Leaders of the G7 advanced economies on June 28 reached a broad agreement to find ways of introducing the cap, but the technical work is still to come.
“This is a very ambitious and demanding project, and there is still a lot of work to be done,” German Chancellor Olaf Scholz said at a concluding press conference.
French President Emmanuel Macron added that while “the idea to put a cap is a very good one, there is technical difficulty.” Introducing a price cap on Russian oil might also pave the way for a cap on Russian gas prices as well.
How the cap would work The US had initially pushed for a Russian oil price cap that could be enforced by lifting sanctions on the insurance of cargo ships that handle the country’s crude, in return for a price deal. Those sanctions would be lifted for countries that agreed only to purchase Russian oil at a settled maximum price, creating an incentive for the price cap to be complied with. G7 leaders said they viewed this as the preferred option.
“We will consider a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultations with international partners.” While the US and Canada have already prohibited Russian oil purchases, the EU is yet
56 RUSSIA Country Report October 2020 www.intellinews.com