The G7, the seven richest industrialized countries, are to “urgently” introduce a cap on the price of Russian oil and encourage a “grand coalition” of other countries to go along with it. This is stated in a statement released Friday.
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According to the plan, the transportation of Russian oil and oil products worldwide would only be possible if the oil was purchased below a certain price. The West, in particular, can put pressure on it, as that can link important services such as insurance for oil shipments – largely in the hands of Western countries – to compliance with the price cap.
“The price cap will be set based on a set of technical data and will be approved by the entire coalition before it is applied,” the seven countries said. The future prizes will be “communicated publicly, in a clear and transparent manner.” Prices would be lower than today’s, but higher than producer prices so that Russia still benefits from selling oil and does not stop deliveries.
In the communication, the G7 countries (United States, Canada, France, Germany, Italy, Japan and the United Kingdom) also called on other countries importing oil from Russia to follow suit. “We are looking for a broad coalition to maximize the effect,” it sounds. The G7 “invites all countries to express their views” on the price cap.
The G7 hopes that in the future Russia will also sell oil to major importers such as India at a much lower price. Although it remains to be seen whether this will succeed: New Delhi has already opposed a price ceiling in the past. And convincing China is also going to be quite a challenge.
The measure is intended to hit Russia financially and thus reduce Moscow’s capacities to wage war, but also to reduce the effects of the war in Ukraine on energy prices. US Treasury Secretary Janet Yellen sees the move as “one of the most powerful tools to fight inflation and protect workers and businesses in the US and around the world from future price hikes caused by global disruptions,” it said in a press release.
The aim is to introduce the price cap in line with the timing of European sanctions against the Russian oil industry, scheduled for December 5. Then the purchase of Russian oil will be banned and third countries will no longer be allowed to use oil-related insurance and financial services from EU countries. In order for the G7 plan to go ahead, EU countries will have to be convinced to adjust those rules, according to Bloomberg. And that can still be difficult.