G7 countries decides to set a price limit on Russian oil

• G7 nations agree to impose a price cap on Russian oil. Aim is to limit Moscow’s ability to fund its war in Ukraine without escalating global inflation.
• The maximum price would be set by “a broad coalition” of countries.
• Russia has threatened to retaliate against countries that impose price controls.

The world’s largest economies agreed on Friday to impose a price cap on Russian oil in an effort to limit Moscow’s ability to fund its war in Ukraine without further escalating global inflation.

The G7 finance ministers — the United States, Japan, Canada, Germany, France, Italy, and the United Kingdom — said they would prohibit the provision of “services that enable maritime transportation of Russian-origin crude oil and petroleum products globally” above the price cap. This could prevent insurance or financing for oil shipments.

According to a joint statement, the maximum price would be set by “a broad coalition” of countries. It would go into effect alongside the European Union’s next round of sanctions, which include a ban on seaborne Russian oil imports beginning in early December.

Russia has already threatened to retaliate by prohibiting oil exports to countries that impose price controls.

“We will simply not supply oil and petroleum products to such companies or states that impose restrictions, as we will not work non-competitively,” Deputy Prime Minister Alexander Novak told reporters Thursday, according to state news agency TASS.

For months, the Biden administration has urged governments to impose a price cap. Many Russian energy exports have already been sanctioned by the West, but Moscow has continued to earn billions of dollars per month by diverting oil to countries such as China and India.

“The price cap is specifically designed to reduce Russian revenues and Russia’s ability to fund its war of aggression whilst limiting the impact of Russia ́s war on global energy prices, particularly for low and middle-income countries,” the G7 finance ministers said.

However, the measure still requires improvement and will be extremely difficult to manage. The price at which Russian oil will be capped is still being worked out. To be effective, it would also require broader international support.

“What China and India do will have to be a national decision for them,” a senior US Treasury Department official told reporters on a conference call Friday.

However, if the cap forces Russia to strike cheaper deals with trading partners by putting a ceiling on the price at which they can sell their products, the country will still meet its objectives, according to the official.
According to TASS, Novak has called the proposed restrictions “completely absurd” and has warned that they could destroy the global oil market.

“Such attempts will only destabilize the oil industry, the oil market,” he said.Russia may be able to provide alternative insurance for its oil shipments. However, a US Treasury official stated that they would be more expensive, increasing the incentives for buyers to participate in the price cap system.

According to the International Energy Agency, crude oil and other oil product flows to the United States, United Kingdom, European Union, Japan, and South Korea have decreased by nearly 2.2 million barrels per day since the start of the Ukrainian conflict.

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