Russo-Ukrainian war: G7 price caps for Russian oil come into effect

The maximum price of oil transported by the Russian sea, agreed between the European Union, the Group of Seven and Australia, entered into force.

The $60-a-barrel cap, which took effect Monday, aims to limit Russia’s ability to fund its war in Ukraine while ensuring it continues to supply the global market.

But Moscow said it would not comply with the measure even if it had to cut production.

The limit comes on top of the European Union’s ban on Russian crude imports by sea and similar pledges from the United States, Canada, Japan and the United Kingdom.

This means that Russian oil sold at $60 a barrel or less can be shipped to foreign countries using G7 and EU tankers, insurance companies and credit institutions. With the world’s major shipping and insurance companies located in the G7 countries, the maximum could prevent Moscow from selling its oil at a higher price.

Countries that do not adopt this measure can continue to buy Russian oil above the price ceiling, but without using Western services to obtain, secure or transport it.

“We have clear signs that a number of emerging economies, particularly in Asia, will adhere to cap-and-trade principles,” a European official told AFP, adding that Russia was already “under pressure” from its customers to offer discounts.

But Russia, the world’s second largest oil exporter, said on Sunday it would not accept the cap and would not sell oil subject to it.

Deputy Prime Minister Alexander Novak said the West’s move represented a major intervention that violated free trade rules and would destabilize global energy markets by creating supply shortages.

“We are working on mechanisms to prohibit the use of a price cap tool at any specific level, because such interference could further destabilize the market,” he said.

He added, “We will sell oil and petroleum products only to countries that will work with us on market terms, even if we have to cut production a little.”

The vente of petrol and gas in Europe is the one of the main sources of revenus in the devises of the Russian depuis that the geologues soviétiques ont decouverted petrol and gas in the villages of Sibérie in the decades that have won the second World War.

The G7 price ceiling, which was agreed upon on Friday, is not far below the $67 level where a barrel of Russian oil closed late in the day. Therefore, the European Union and the G7 countries expect that Russia still has an incentive to continue selling oil at this price while accepting lower profits.

A second European official told AFP that “Russia must preserve its interests by selling its oil” or risk cutting off global supplies and raising prices, adding that he did not believe the Kremlin’s threats to halt deliveries to countries that adhere to the ceiling.

The official said Russia will remain concerned about maintaining the state of its infrastructure, which would be damaged if production is halted, and maintaining the trust of its customers, including China and India.

While Russia may be inclined to create, operate and insure its own fleet of tankers on its own, Brussels believes that “building a marine ecosystem overnight would be very complex” – and such implementation measures may find it difficult to convince customers.

The cap level will be reviewed by the European Union and the G7 every two months, with the first such review scheduled for mid-January.

“This review must take into account (…) the effectiveness of the measure, its implementation, international compliance and coordination, the potential impact on coalition members and partners, and market developments,” the European Commission said in a statement.

The cap on crude oil will follow a similar measure affecting Russian petroleum products that will take effect on February 5, although the level of this cap has yet to be determined.