Moscow blames Kyiv for explosions at 2 military bases in Russia: Live updates

Europe and the United States began implementing on Monday two of the toughest measures aimed at curbing Russia’s oil income, the main source of money used to finance its nearly 10-month-old war in Ukraine.

the first, price cap initiative led by the United States, aims to increase economic pressure on the Kremlin, while 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. This was a step that the European Union took agreed upon months ago but this was phased in with exceptions to prepare member countries.

Prices rallied 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 futures were trading at $82 a barrel.

No immediate impact on European oil supplies is expected, in part because the embargo has been in the works for months and energy companies have already begun 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 administer, one sanctions expert said the lengthy negotiations had produced a deal with the potential to work.

“I suspect that the compromise that has been reached gives the policy the best chance to succeed,” said Edward Fishman, a senior fellow at Columbia University’s Center for Global Energy Policy.

Mr. Fishman, who previously led the State Department’s planning and implementation of sanctions against Russia, said there were several reasons to be optimistic. One is the recent softness in oil markets, which he interpreted as meaning that Russian oil is no longer as critical to the 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 necessary, provides the “flexibility” that has historically helped sanctions, such as those targeting Iran’s oil sales, to become effective.

Still, skepticism about the likely efficacy of the measures stems in part from the fact that the United States and European countries have forced European shippers and insurers to implement them by refusing to handle cargo priced above $60 a barrel.

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 Victor Katona, an analyst at Kpler, a research firm that tracks supplies.

Russia has said it will not accept a price cap and has threatened to cut off supplies to countries that comply with the agreement. If Russia follows these steps and curbs oil as it has natural gas flows to Europe, it could wreak havoc on the oil markets.

“These measures will undoubtedly have an impact on the stability of the global energy market,” Kremlin spokesman Dmitry Peskov said on Monday, according to TASS, Russia’s state news agency, referring to the embargo and price cap.

Analysts say Russia is building a so-called shadow fleet of old tankers to export its oil and avoid EU sanctions, but they doubt it can assemble 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 largely stopped buying Russian oil, so any problems with a decline 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 ceiling were the main reasons why 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 is no reason to change policy amid the many economic uncertainties, including China’s faltering economy and crippling global inflation, that are fueling recession fears.

Many analysts believe that Saudi Arabia, the de facto leader of the group of producers, is aiming for a price of around $90 a barrel for Brent crude. The Saudis, according to market watchers, would likely cut output, despite protests from Ukraine and its allies, if prices fell significantly from that level.