· Wednesday, October 5 UN Sanctions
The 27-nation bloc will ban Russian oil from being transported to other countries by sea above the price limit requested by the G-7 Group until December 5, when an embargo on Russian oil will take effect. A specific price for the future cap has not yet been defined.
Agreeing on a price ceiling was not easy, as some EU countries were concerned that this would hurt their shipping industry. The Czech Republic said the new sanctions also include an 'extended import ban' on goods such as steel products, wood pulp, paper, machinery and equipment, chemicals, plastics and cigarettes. The ban on providing IT, engineering and legal services to Russian organizations will also come into effect.
The 27-nation bloc has agreed to ban Russian oil coming by sea, not pipeline, but some member states still need Russian supplies at low prices. Questioning the effectiveness of previous measures and saying that it could not support more energy sanctions before, Hungary said it was exempted from any new steps that would put its energy security at risk.
· OPEC+'s Response
Members of OPEC+, a group that includes Saudi Arabia and Russia, said they would cut production by two million barrels per day. The group said it wanted to stabilize prices that had fallen in recent months as the world economy slowed.
Expectations that countries are planning to pump less had already boosted oil prices this week. The price of Brent crude rose almost 2% to over $93 (£82) a barrel on Wednesday.
A spokesperson for the RAC auto group said the decline announced Wednesday would 'inevitably' lead to higher oil prices and increase the wholesale cost of fuel.
The decision came despite requests from the United States and others to pump more, after oil prices soared as the war in Ukraine disrupted supply. The United States has pledged to continue releasing oil from national stockpiles 'as appropriate' and to seek other ways to try to rein in prices at the pump, a key issue for American voters in the midterm elections scheduled for November. The move is also likely to disrupt efforts to set a price cap for oil from Russia, a plan the US has proposed as a way to limit the flow of money into the country and its introduction to military use.
OPEC members defended their decision as a response to significant 'uncertainty' over future oil demand amid fears that the global economy is headed for recession. 'The decision is technical, not political,' UAE Energy Minister Suhail al-Mazroui told reporters as OPEC+ members met in Vienna to discuss the plans.
· Geopolitical and Economic Impact
The final decision of OPEC+ is important not only for oil markets, but also for geopolitics. The move not only risks driving up oil prices, but it will also undermine the West's efforts to curb Russian oil revenue, which is used to continue its war in Ukraine. Many countries will see this as a clear indication that major oil producers, especially Saudi Arabia, are siding with Russia in the name of protective oil market management.
High oil prices were the main driver of the rise in consumer prices, which hit countries around the world earlier this year, pushing inflation rates to levels not seen in decades and fueling political tensions. The recent drop has given consumers some relief, even as the prices of many other essential foodstuffs, including food, continue to rise.
Analysts said the impact of the cuts would likely be less significant than their size might suggest, as some countries are already producing less than they say and Capital predicts a 1% drop in global supply as a result. Kathleen Brooks, director of Minerva Analysis, said the production cut was 'the worst-case scenario people are looking for' - accordingly, it will weigh on UK financial markets and raise fears that prices will continue to rise throughout the economy: 'It changes the narrative in terms of peak inflation - we may not be there yet.'
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