The largest Western economies agreed on Friday to impose a cap on Russian oil prices in a bid to reduce Moscow’s ability to finance its war in Ukraine without further fueling global inflation.
Finance ministers from the G7 group of countries – the United States, Japan, Canada, Germany, France, Italy and the United Kingdom – have said they will ban the provision of “services that enable maritime transport of crude oil and petroleum products of Russian origin in the world”. above the ceiling price. This could block insurance coverage or funding for oil shipments.
The maximum price would be set by “a broad coalition” of countries, they said in a joint statement.
Russia had previously threatened to retaliate by banning oil exports to participating countries.
“We simply will not supply oil and petroleum products to those companies or states that impose restrictions, because we will not work in an uncompetitive way,” Deputy Prime Minister Alexander Novak told reporters on Thursday, according to the report. state news agency TASS.
The West has already sanctioned many Russian energy exports, but Moscow has continued to earn billions of dollars a month by diverting oil to China and Asia.
The Biden administration has been pushing for governments to introduce price caps because it would reduce the revenue President Vladimir Putin needs to fund his war in Ukraine, while theoretically allowing Russian barrels to continue flowing to markets. global markets, thus avoiding a new inflationary supply shock.
“The price cap is specifically designed to reduce Russian revenues and Russia’s ability to finance its war of aggression while limiting the impact of the Russian war on global energy prices, particularly for countries low and middle income,” the G7 finance ministers said.
But the measure still requires a lot of work and will be extremely complex to manage. How, when and to what extent the price of Russian oil could be capped remains to be seen. It would also need broad international support to be effective.
Since the start of July, oil prices have fallen about 18% in anticipation of a reduction in demand by the recession, but they are still about 20% higher than they were there one year old.
Novak called the proposals to impose restrictions “completely absurd” and said they could destroy the global oil market, TASS reported.
“Such attempts will only destabilize the oil industry, the oil market,” he said. “It will completely ruin the market,” he added.
Europe and the United States have banned most Russian oil imports. But the plan to make Putin suffer didn’t work.
Flows of crude oil and other petroleum products to the United States, United Kingdom, European Union, Japan and South Korea have fallen nearly 2.2 million barrels per day since the start of the war in Ukraine, according to the International Energy Agency.
But two-thirds of that drop was redirected to other markets like China and India, helping to bail out Moscow’s coffers. Export earnings in July were around $19 billion, the IEA said.
Russia’s control of large swathes of the world’s energy supply remains a major problem challenge six months after its invasion of Ukraine. This week, Russia temporarily halted natural gas deliveries to the region through a vital pipeline and cut off all supplies from a French utility, compounding problems that have driven European inflation to a record 9% .
Russian energy giant Gazprom said the reduction in deliveries through the Nord Stream 1 gas pipeline was due to a planned shutdown of a few days for maintenance work. It is supposed to reopen on Saturday.
— Chris Liakos, Anna Cooban and Manveena Suri contributed to this report.