Russian oil import price cap to be implemented ‘urgently’ by G7
Russian oil import price cap to be implemented ‘as a matter of urgency’ by G7
Germany: In an effort to cut a major source of funding for Moscow’s conflict in Ukraine, the G7 industrialized nations pledged on Friday to act “urgently” to impose a price restriction on Russian oil imports.
The G7 said it was working on a “broad coalition” of support for the proposal. At the same time, the French authorities have warned that only when the 27 countries of the European Union have given their consent can a “final” decision be taken. Households have mainly borne the cost of rising energy costs on the continent, and governments are under pressure to reduce the agony of high inflation.
At a press conference after the decision, German Finance Minister Christian Lindner said: “Russia benefits economically from the instability in the electricity market caused by the conflict and derives great wealth from the export of oil, and we want to counter that firmly.
He said the purpose of the minimum oil export price was to “contain the rise in world fuel prices” and “stop a vital source of funding for the conflict of aggression.”
Dmitry Peskov, the Kremlin spokesman, issued a strong warning ahead of Friday’s vote. According to him, the establishment of a minimum price “would lead to a serious destabilization of the oil markets”.
According to Russian media, Russian Deputy Minister Alexander Novak warned on Thursday that Moscow “simply won’t supply oil and energy products to companies or jurisdictions that impose limitations.”
“Interfering with the market processes of such an important industry… can only make the oil market and ambition unstable. And the first to suffer will be customers in Europe and America,” he added.
G7 leaders decided to work to enforce the crude sales cap at their June summit. Without mentioning the amount of the cap, the G7 finance ministers stressed in their statement that they would “work urgently to complete and execute” the time-consuming policy change.
According to US Treasury Secretary Janet Yellen, price caps are “one of the most effective tools we have to fight deflation and protect workers and businesses in the United States.”
According to the French Finance Minister, the technical implementation of the price cap is still “in progress”.
He said that “it is obvious that no final decision can be taken until we have conferred and obtained the unanimity of the 27 Member States of the European Union”. French Finance Minister Bruno Le Maire continued: “We welcome all measures that restrict Russia’s income from the sale of oil.”
According to European Commissioner Paolo Gentiloni, the group hopes to reach an agreement on crude oil by December 5 and on petroleum products by February 5.
The G7 has expressed a desire to extend the policy beyond the bloc, saying it seeks to build a “broad coalition” in favor of the oil price cap to “maximize” its impact.
To commit to import Russian oil and oil products only at or below the price ceiling, the ministers urged “all nations that still wish to purchase Russian oil and oil products”. At the G20 conference in Bali on Nov. 16, leaders are expected to focus heavily on trying to convince as many nations as possible to accept the cap.
G7 ministers said the initial cap would have been set “at a level determined by a variety of technical inputs” and that its effectiveness would be “closely monitored”. Analysts, however, warned that the limit could still lead to higher prices.
According to Capital Economics analyst Liam Perch, the cap “may disrupt Russia’s energy supply”, which would increase risks for the oil market. “It could raise the price of electricity around the world even more.”
He speculated that a limit somewhere below 80 dollars (80 euros) a barrel could “drive the Russian economy into a deficit” and added: “The cap could also be successful in reducing the tax revenue of the Russian government”.
The purpose of the price cap is to allow market players from third countries to buy and ship Russian crude unhindered by US, EU or UK sanctions, provided they only agree to pay a pre-determined price well below market value. The aim is to ensure that the supply of Russian oil is maintained at a lower cost to decrease Moscow’s export income.
That would be the soonest, and for him to succeed he would need the backing of big Russian oil consumers, like India and China, both of which have increased their purchases since the G7 and EU announced their intention to restrict their oil supplies from Russia, in whole or in part.
Despite a significant drop in Russian oil production in April, it has recovered and Deputy Minister Alexander Novak expects this trend to continue in July, returning to levels similar to those seen before Moscow’s war on Ukraine. . Russian crude shipments have recently held steady at over 5 million barrels per day.
Following the approval of the latest round of sanctions by the EU, which imposed a phase-out of most imports of oil and products from Russia, the concept of price limits was first introduced to United States and United Kingdom. Given the dominance of European companies in this market sector, the package includes a complete ban on the provision of reinsurance and other services that help trade and transport oil.
This has repercussions for third countries. To carry out the G7 plan would require exceptions to US, UK and EU sanctions that would allow third-party market players to buy and transit Russian crude in return for their agreement only to pay a fixed price which is significantly below market value.
It can be difficult to overcome the practical difficulties presented by the plan. It is far from certain that Russia will accept the constraints imposed on its main source of income by other parties.
The level of regulated prices should, in principle, provide sufficient incentive for Russian sellers and foreign buyers to collaborate. Since the energy crises of the 1970s, rich Western countries have not imposed restrictions on oil prices.
Edited by Prakriti Arora