By Alexandra Brzozowski
(EurActiv) — G7 finance ministers on Friday (2 September) agreed to impose a price cap on Russian oil to slash Moscow’s revenues while keeping crude flowing and avoiding price spikes, but specifics were not defined.
Energy prices jumped following Russia’s decision to launch a full-scale invasion of Ukraine on 24 February, followed by unprecedented economic sanctions against Moscow, leading to fears that revenues would be used to fuel the war in Ukraine.
“Today we confirm our joint political intention to finalise and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally,” the statement by finance ministers from the US, UK, France, Germany, Italy, Canada and Japan read.
The per-barrel level of the price cap would be determined later “based on a range of technical inputs” to be agreed by the coalition of countries implementing it, they said in their statement after Friday’s virtual meeting.
The provision of maritime transportation services, including insurance and finance, would be allowed only if the Russian oil cargoes are purchased at or below the price level “determined by the broad coalition of countries adhering to and implementing the price cap.”
The G7 finance ministers’ statement follows up on their leaders’ decision in June to explore the cap, which Moscow says it will not abide by and can thwart by shipping oil to states not obeying the price ceiling.
Since then, US officials have worked to find a consensus within the G7 on the outlines of the cap and how it would be implemented.
Biden administration officials have voiced confidence that they will be able to secure international support to impose the price cap, partly because of the progress at the G7, but acknowledge that bringing all EU member states on board for the plan will be more difficult.
“A price cap (. . .) makes sure that every country can get the lowest price possible, and that is good for the world,” James O’Brien, the US State Department’s Sanctions Coordinator, told reporters in Brussels before meetings with his EU counterparts.
The seven ministers said in their joint statement they would work to finalise the details, aiming for the capping mechanism to be implemented at the same time as the EU’s embargoes on Russian oil imports into the bloc starting in December.
The EU measures are set to take effect on 5 December for crude and 5 February next year for refined crude products.
Although the European Commission has signalled its support for the system, EU member states still need to back the plan as it will require modifying or amending the bloc’s sixth sanctions package.
Member states like Hungary, which previously pushed for the oil they buy from Russia via pipeline to be exempted from the EU’s import ban, have not yet agreed on such a plan.
Some EU officials and diplomats also have expressed concerns that such a debate could “open Pandora’s box” and potentially open the door for some member states to water down existing sanctions measures.
Furthermore, G7 ministers said they would seek a broader coalition of oil importing countries to purchase Russian crude and petroleum products only at or below the price cap and invite their input into the plan.
Russia on Thursday threatened to stop selling oil to any country that adopted a price cap mechanism, with Kremlin spokesperson Dmitry Peskov saying on Friday the move would be an “absurd decision” and would “lead to a significant destabilisation of oil markets”, according to Interfax.
In private, Western officials, however, over the past few weeks, have been repeating they don’t see Moscow acting upon its threats.
“Russia needs to keep its energy machinery running and needs the money. What it chooses to do is its decision,” O’Brien told reporters in Brussels when asked about the Russian comments.
But while the US and Europe have moved to cut themselves off from Russian oil, significant importers such as China and India have been buying it at heavily discounted prices.
Some G7 officials have expressed concerns that the price cap would not be successful without their participation.
At the same time, some officials stressed before Friday’s announcement that supporting third countries that buy large quantities of Russian oil will be necessary for the cap to be most effective.