Hong Kong / London
The West’s largest economies agreed on Friday to impose a ceiling on Russian oil prices in a bid to limit Moscow’s ability to finance its war in Ukraine without raising global inflation.
Finance ministers from the Group of Seven (G7) nations — the United States, Japan, Canada, Germany, France, Italy and the United Kingdom — said they would ban the provision of “services that allow the worldwide shipping of crude oil and petroleum products of Russian origin.” above the price ceiling. This can prevent insurance coverage or the financing of oil shipments.
In a joint statement, they said the maximum price would be set by a “broad coalition” of countries. It will come into force alongside the next set of EU sanctions, which include a ban on imports of seaborne Russian oil starting in early December.
Russia had already threatened to retaliate by banning oil exports to countries with a price cap.
“We will not simply supply oil and petroleum products to such companies or countries that impose restrictions, because we will not act non-competitively,” Deputy Prime Minister Alexander Novak told reporters Thursday, according to the state news agency TASS.
The Biden administration has been pressing governments to introduce price caps for months. The West has already done it Sanctions imposed on several Russian energy exportsBut Moscow continued to earn billions of dollars a month by funneling oil to countries like China and India.
“The price ceiling is specifically designed to reduce Russian revenue and Russia’s ability to finance its war of aggression while limiting the impact of Russia’s war on global energy prices, especially for low- and middle-income countries,” the G7 finance ministers said.
But the procedure still needs to be worked out and it will be very difficult to manage. The price at which Russian oil will be capped has yet to be fragmented. It will also need broader international support to be effective.
“What China and India are going to do should be a patriotic decision for them,” a senior US Treasury official said in a phone call with reporters on Friday.
The official added that if the cap forces Russia to make cheaper deals with trading partners by capping the price at which they can sell their products, it will still achieve its goals.
TASS reported that Novak described the proposals to impose restrictions as “utterly absurd” and said they could destroy the global oil market.
“Such attempts will only lead to destabilization of the oil industry and the oil market,” he said.
Russia can offer alternative insurance for its oil shipments. But the US Treasury official noted that it would be more expensive, increasing incentives for buyers to sign up for the price cap scheme.
Flows of crude oil and other oil products to the United States, the United Kingdom, the European Union, Japan and South Korea have fallen by about 2.2 million barrels per day since the start of the war in Ukraine, according to the International Energy Agency.
But two-thirds of that drop has been rerouted to Other markets, which helps fill Moscow’s coffers. The International Energy Agency said export earnings in July amounted to about $19 billion.
Russia’s control of large swaths of the world’s energy supply remains key The challenge of six months since the invasion of Ukraine. This week Russia temporarily Stop Natural gas shipments to the region via a vital pipeline have cut off all supplies to French utilities, exacerbating problems that have pushed European inflation to a record 9%.
Russian energy giant Gazprom said the disruption to shipments through the Nord Stream 1 pipeline was due to a planned shutdown of a few days for maintenance work. It is supposed to open again on Saturday.
– Chris Liakos, Anna Cuban and Manvina Suri contributed to this report.
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