In Geopolitics Today: Wednesday, October 5th
The European Union Agrees Price Cap on Russian Oil, OPEC+ Agrees Major Oil Production Cut, and other stories.
The European Union Agrees Price Cap on Russian Oil
The European Union has approved a new round of sanctions against Russia that include a price cap on the maritime trade of Russian oil. The latest sanctions endorsed by EU ambassadors also introduce a ban on new exports and imports, as well as a provision preventing EU nationals from sitting on governing boards of Russia's state-owned companies.
The EU aims to slash Russia’s huge oil revenues to cut off Moscow’s ability to maintain a costly war effort in Ukraine. The price cap still needs to be made into EU law before it is effective and enforceable, and will work in tandem with G7 plans to forbid insurance and shipping firms from providing services to Russian companies that sell oil at a price above the agreed-upon cap. EU and UK-based insurers enjoy a dominant position in shipping insurance services, making it difficult for Russian vessels to find coverage elsewhere.
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OPEC+ Agrees Major Oil Production Cut
Ministers from OPEC+ — a group of oil exporting countries led by Saudi Arabia and Russia — agreed to slash output by two million barrels per day, prompting pushback from the United States.
OPEC+ began to raise production last year following improvements in the market, and output returned to pre-pandemic levels. Some members of the organization, including Russia, have already struggled to meet quotas set by the group, which could limit the impact of the OPEC+ agreement to slash production. The decision came after heavy lobbying by Washington in Gulf capitals against the move, and the White House said it was “disappointed” in the “short-sighted” decision.
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Kazakhstan and Russia in Diplomatic Spat over Ukrainian Ambassador
In a further sign of strained relations, Kazakh authorities recently rejected a demand from Russia to expel Ukraine's ambassador over comments he made, with Astana protesting at Moscow for taking an inappropriate tone in discussions.
The conflict between the two escalated after Ukraine's ambassador in Astana, Petro Vrublevskiy, said in an interview that “the more Russians we kill now, the fewer of them our children will have to kill,” causing outrage in Moscow. Russia demanded that Kazakhstan expel the diplomat, but Astana instead asked Ukraine to replace him. Russia’s response has upset ties with Kazakhstan, as Kazakh foreign ministry officials called Moscow’s demands “discordant” with the relations between the two “as equal strategic partners."
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The End of the European-Russian Energy Relationship
Following a landmark gas deal between the Soviet Union and West Germany in February 1970, the energy relationship between Germany and Russia flourished. Strong energy ties lasted through the collapse of the Soviet Union, German reunification, post-Soviet independence, and more. Now, Europe will have to reckon with a major industrial transformation as production becomes unprofitable.
For decades, the competitiveness of European industry hinged on affordable Russian energy, an arrangement that has largely ended with Nord Stream 1 & 2 out of operation. A recession in Europe appears inevitable as Deutsche Bank now predicts that the Euro-area will lose three percent of its GDP in the next year. European governments are doing their best to shield businesses and their citizens from the impacts, but these interventions are costly, and do not address the long-term threat of consistently high energy costs.