The finance ministers of the Group of Seven (G7), the intergovernmental forum of seven leading industrial states, will discuss Friday whether a price cap can be imposed on Russian oil. This should reduce the pressure on the international energy market, but should also take the wind out of the sails of the Russian war machine.
The news was announced Wednesday by the administration of US President Joe Biden. The measure is partly intended to ensure that the profits that Russia derives from crude oil are squeezed. Although the country is exporting less oil, its profits have risen in recent months due to skyrocketing oil prices.
“We believe this is the most effective way to crack down on Putin, which will lead not only to a drop in Putin’s oil revenues, but also in global energy prices,” said White House spokesman Karine Jean-Pierre. Wednesday at a press conference.
In June, the Kremlin made $700 million more from oil than in May, the International Energy Agency (IEA) reported. That is despite the fact that Russia delivered 250,000 fewer barrels of crude oil every day during that month. The country then exported 7.4 million barrels per day, the lowest output since August 2021.
UK supports price cap
Although many analysts initially thought that the impact of Western sanctions on the Russian economy would be large, the country appears to be still farming well for the time being. For this reason, the G7 already discussed a possible price cap on Russian oil in June, although there was little support for it at the time. For the time being, it is not yet clear what a price cap would look like and which countries would participate.
Outside the US, only the UK has openly supported the plan for the time being. On Wednesday, the British Chancellor of the Exchequer in Washington said the country’s government is confident that a price cap will yield results. He did add that more needs to be done to convince other countries, pointing the finger specifically at India, Turkey, South Africa and Norway. According to Zahawi, the ceiling would be “most effective if it is supported by the broadest possible coalition”.
Jean-Pierre said on Wednesday that more details will be released on Friday after the matter is discussed. “We believe this will be a way to really hit Russia financially,” the spokesperson said. The western powers have so far failed to significantly affect the Russian economy with the current sanctions.
In addition to a possible price ceiling, the West wants to take other measures for that reason. For example, the EU will introduce an embargo on Russian oil from December. It is expected that about 1.3 million barrels per day less will flow to the European market, reported Bloomberg. After that, the import of oil products will also be restricted in February. As a result, imports will have to fall by another million barrels per day, which means that the EU will no longer buy Russian oil at all.
In the meantime, Russia is looking for other markets, such as Turkey, China and India, for the black gold. In order to get rid of the oil surplus, it offers oil in some of those countries at a substantial discount. According to Bloomberg the country in the region is selling 800,000 barrels a day more every day this year than in 2021.