Jhe group of seven most industrialized nations has said it plans to implement a price cap on global purchases of Russian oil – a move the United States hopes will ease pressures on the oil market. energy and will reduce Moscow’s overall income.
“We confirm our common political intention to finalize and implement a comprehensive ban on services that enable the maritime transport of crude oil and petroleum products of Russian origin around the world,” the G7 finance ministers said in a statement. joint statement. “The provision of such services would only be permitted if petroleum and petroleum products are purchased at or below a price (“the price cap”) determined by the broad coalition of countries joining and implementing the price cap.”
Ministers said they planned to put in place a price cap in line with the timetable for European Union sanctions against Russian oil which are due to come into force on December 5. The statement, which notes that all EU countries will need to approve any changes to the sanctions, did not provide a price range for the possible price cap.
“The initial price cap will be set at a level based on a range of technical inputs and will be decided by the entire coalition prior to implementation in each jurisdiction,” the ministers said in the statement. “The price cap will be communicated publicly in a clear and transparent manner.”
The G-7 plan, part of broader efforts to punish Russia for its military invasion of Ukraine, would allow buyers of Russian oil at a price cap to continue to obtain crucial services like financing and tanker insurance.
Oil prices trimmed gains slightly on news that the G7 was close to reaching a deal as traders grappled with the likelihood of such a regime being imposed and any impact it might have.
“Today’s action will contribute to a severe blow to Russian finances and will both hamper Russia’s ability to wage its unprovoked war in Ukraine and will accelerate the deterioration of the Russian economy,” the statement said. US Treasury Secretary Janet Yellen in a statement. “We have already started to see the impact of the price cap through Russia’s hasty attempts to broker bilateral oil swaps at massive discounts.”
To put a cap in place, diplomats will have to convince European Union member countries to change their sixth round of sanctions against Russia following the invasion of Ukraine, and that could still prove difficult. The package, which banned the purchase of Russian oil from December 5, included a ban on the use by third countries of the bloc’s companies for oil-related insurance and financial services.
But the effectiveness of a price cap regime remains uncertain, especially since some of Russia’s biggest buyers have not agreed to join it. India is hesitant to formally join a price cap scheme amid fears its industry could lose to other buyers the chance to buy discounted Russian crude, according to people familiar with the company’s views Indian.
US Deputy Treasury Secretary Wally Adeyemo visited India last month, where he said the coalition to cap Russian oil prices had grown and a number of countries had joined there. seals, while refusing to name them.
“Pretty big steps are going to have to be taken to make sure that companies don’t find ways around price caps,” said Richard Watts, chief executive of Geneva-based commodities trading consultancy HR Maritime. “That was the challenge of Iraq’s food-for-oil program in the 1990s. The question is, how does the G7 control that?
Nor will it be easy to obtain the full support of the EU. Hungary, which has closer ties with Russia, delayed agreement on the initial sanctions package for weeks as the bloc tried to reach an agreement on targeting the Russian energy sector. Budapest signaled it would oppose any cap on oil prices, signaling another potentially tricky political fight.
Russia said on Friday it would not sell oil to countries that impose a price cap on its oil. “We just won’t interact with them on such non-market principles,” Kremlin spokesman Dmitry Peskov told reporters on a conference call, adding that Russian oil would find alternative markets. .
The United States and its allies have debated how best to sanction Russia after its invasion rocked energy markets and sent crude prices soaring. The G7 – which also includes Germany, the UK, France, Italy, Japan and Canada – pledged earlier this year to reduce dependence on Russian energy, in particular “by suppressing or prohibiting the import of Russian oil”.
G-7 leaders announced at a June summit in Elmau, Germany, that they would review the price cap plan. But German Chancellor Olaf Scholz insists price caps can only work properly if introduced globally and backed by more than the G-7 countries. Support from big buyers of Russian oil, such as India and Turkey, is seen as particularly crucial.
“The price cap fundamentally lacks impact unless the G-7 can persuade other major buyers (i.e. China, India, Turkey, etc.) to sign up” said Christopher Haines, global crude oil analyst at consultancy Energy Aspects, in an email response. to the questions. “They are all reluctant despite the offer of exemptions from Western financial and maritime sanctions. Meanwhile, Russia will be determined to undermine the policy for both political and economic reasons.
US officials have argued that the price cap could work even if many buyers do not officially join the coalition, as they could still use the system as leverage in contract negotiations with Moscow to negotiate lower prices.
Another key factor will be at what level the cap price is set. US officials have hinted they intend to set it slightly above Russia’s marginal cost of production, according to a person familiar with the matter, although the final level depends in part on the world price of oil when it will come into force.
White House press secretary Karine Jean-Pierre said Thursday that the measure, if passed, would reduce President Vladimir Putin’s oil revenue overall by “lowering the price of Russian oil to help mitigate the impact of Putin’s war at the pump”.
—With help from Josh Wingrove, Archie Hunter, Kwaku Gyasi and Christopher Condon.
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