On Monday, after months of brainstorming and weeks of internal haggling, the European Union, along with the G7 and Australia, finally snapped into place the next phase of its plan to economically kneecap Moscow: a $60 price cap on Russian oil, as well as an E.U. embargo on Russian crude. The price cap was floated earlier this summer by the Biden administration in part because sanctions, as draconian as they were, have not done nearly as much damage to the Russian economy as Western leaders had initially hoped. The Russian economy has proven remarkably resilient, as have the Russian people who, unlike their American counterparts, know there’s not much they can do politically when their economic condition worsens.
The main reason for Russia’s financial resilience, of course, was its oil and gas revenues, which before the war made up more than a third of Russia’s federal budget. Thanks to the war Vladimir Putin launched on February 24, prices for those two commodities skyrocketed, even as they became more difficult to sell, which has kept Putin’s coffers full and his war machine humming.
The new price cap and embargo are designed to starve the Russian budget of its lifeblood, at least a little bit. How does it work? The embargo is self-explanatory—and there’s apparently a diesel embargo coming in a few months—but the price cap is a little trickier. The enforcement mechanism hinges on banning entities based in the G7 and the E.U., like insurance firms or tanker companies, from servicing Russian oil exports at anything above $60 per barrel. Although that’s about what Russian oil is selling for currently, the idea is that the price cap will empower countries like China and India, which have already been buying Russian oil at a discount since February 24, to demand an even steeper price cut.