The G7, the seven richest industrial countries, will ‘urgently’ introduce a price cap for Russian oil. This measure should ensure that Putin’s war machine is financially hit and that international energy prices fall. However, the success of the plan depends on whether it is imported by enough major Russian oil-importing countries.
“We stand side by side against Russia’s barbaric aggression. We will do everything we can to support Ukraine in its struggle for sovereignty, democracy and freedom.” US Treasury Secretary Janet Yellen said this last week. After a meeting of the G7 countries, the seven richest industrialized countries – Canada, Germany, France, Italy, Japan, the UK and the US – want to install a price cap on Russian oil.
“The price cap is specifically designed to fund, limit the ability of Russia’s war while limiting the effect of Russia’s war on global energy prices,” the G7 ministers said in a joint statement.
“The price cap will be set based on a set of technical data and will be approved by the entire coalition before it goes into effect.” Prices would be lower than today’s, but still higher than producer prices so that Russia still benefits from selling oil.
‘Broad coalition’ needed
The deal is primarily a political victory for the United States, which already put forward the price cap proposal in April. Many European countries were skeptical about this plan at the time. It was not until June that the G7 discussed a possible price cap on Russian oil, but even then there was little support.
In recent months, analysts have seen that the impact of Western sanctions was still not strong enough to harm the Russian economy. In order to make the price ceiling on Russian oil as successful as possible, other countries are especially needed to introduce the measure. That is why the G7 ministers announced that a ‘broad coalition’ of countries should do the same. The impact of the measure will thus be highly dependent on what other Russian oil importers outside the G7 will do, such as China, Turkey and India.
Oil industry executives and some G7 government officials have expressed skepticism in the past about how such a price cap would work and whether enough countries would implement it. “It will only work if it is organized around the world,” German Chancellor Olaf Scholz said last month. ‘You cannot do it unilaterally, but only in close cooperation with many others. Otherwise it will just come to nothing.’