Russian oil just got hit with sanctions and a price cap after months of lead up. Here's what it means and what happens next.
Good morning, Opening Bell crew. Phil Rosen here, reporting from New York.
If you take anything away from today's newsletter, let it be this: As of today, Russian oil faces a new European Union embargo, as well as a price cap.
Scroll down for details.
1. EU leaders have been debating a price cap for months, but on Friday agreed to a $60-a-barrel level. That paved the way for the Group of Seven to launch the unprecedented measure by the December 5 deadline (that is, today).
As Insider's Brian Evans writes, the idea behind a price cap is to reduce Moscow's export revenues, thereby limiting President Vladimir Putin's ability to fund his war on Ukraine, while still keeping as much Russian oil flowing through global markets as possible.
Keeping those barrels on the market, the thinking goes, will prevent a crash in the world's crude supply, and stave off a price spike.
Still, experts have warned that it's possible the whole initiative falls flat.
Take China and India, the two biggest buyers of Russian crude. They haven't agreed to participate in the price cap, and are already getting steep crude discounts from Moscow.
Oil historian Gregory Brew said the two nations, among other buyers in Asia, won't feel obligated to commit to the cap.
"What it suggests is that Russian buyers are able to negotiate very favorable terms from Russian oil companies, who have to sell in order to maintain operations," Brew told me on a recent phone call.
But even if those major customers keep buying, Russia will have to figure out what to do with the 2.4 million barrels of crude per day that once flowed to the EU.
Some analysts predict Russian oil exports could drop by 1 million barrels per day, or about 20% of its seaborne volume.
To Energy Aspects' senior oil analyst Livia Gallarati, the price cap idea may prove moot because Moscow has cautioned for months that it will cease trade with countries that adhere to the ceiling.
She told me over a video call from London that, ultimately, oil markets probably won't react dramatically in either direction.
"If [Russia] kept selling at the level at which they're selling today, then no countries actually need to officially sign up to the price cap because they're getting that discount anyway," Gallarati said.
What do you think is the most likely outcome of the new sanctions on Russian oil?
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