A plan to cap the price of Russian oil exports is nearing completion, the G7 said on Friday, as details emerged of how they want to cut a vital source of revenue for the Kremlin while limiting the impact on supply and global prices.
The G7 agreed in principle on a price cap in September in response to President Vladimir Putin’s war in Ukraine, but ministers are still working on a final details its implementation.
In the first eight months of 2022 Russia it earned 7.3 trillion rubles ($117 billion) from oil and gas sales, roughly 30 percent of the federal budget for the entire year.
The G7 decided in September that the cap would work by allowing Western companies provide insurance on the maritime export of Russian oil, if the oil is sold at a price below the limit.
“We will complete the implementation of the price ceiling for maritime Russia oil in the coming weeks,” the ministers said in a joint statement after two days of talks in Germany.
The G7 includes the US, Japan, Germany, the UK, France, Italy and Canada. Australia is also involved in the plan.
The pledge comes a day after the UK said it would cut off Lloyd’s of London’s vital insurance market for ships carrying Russian oil, except for all countries that sign up to the price cap.
Western officials say the success of the initiative will depend on how many non-G7 countries decide to sign up or buy at — or below — the limit, with China and India seen as two critical targets given their size and long-term purchases of oil from Russia. .
Moscow has pledged not to sell oil to any country that imposes the limit. New Delhi and Beijing have shown no signs of accepting it. US officials hope that even if India and China operate outside the limit, they will still be used as a bargaining chip to negotiate lower prices from Russia, limiting Moscow’s revenue.
G7 members agreed that the cap would be set at a fixed price, rather than a floating rate tied to existing benchmarks such as Brent crude, which helps determine the international price, according to a coalition official.
Buyers of Russian oil under the cap will also be able to sell oil at market prices in their domestic markets or if transported to another country by pipeline, a coalition source said. But any resale involving the transportation of oil by sea would have to follow cap rules, which limit the price at which it could be sold.
Traders will no longer be able to sell sea cargoes of oil at market prices, a coalition official said. However, Russian oil that has been processed into fuels such as diesel or gasoline can be sold at market prices.
James O’Brien, head of sanctions coordination at the US State Department, said on Friday that the cap would be “certainly ready” to be implemented by December 5, when EU and UK sanctions against Russian oil come into effect. effect.
Companies in the EU, US and UK will still not be able to import Russian oil as their bans on Russian imports by sea will replace the limit that applies outside those countries.
“Price caps have been debated long enough for market participants to understand they are coming and provide opinions on the best way to implement them. Good technical talks [are] going on in terms of pricing and governance,” O’Brien said.
“It is really easy.” It’s just an insurance limitation,” O’Brien said. “So someone who runs a tanker knows: they know how much oil they have, they know what coverage they’re going to have.”
U.S. officials have stressed they want to set the price at a level well above production costs for Russia to keep oil flowing, but far enough below the market price to encourage countries like China and India to participate, raising expectations. that it could be set somewhere near $60 per barrel.
“India and China are the main importers of Russian oil. Our goal is for Russian oil to reach the market. India and China are very tough price negotiators, so I expect they will not want to pay the full price,” O’Brien said while visiting Brussels for a meeting with European Commission officials on sanctions.
“They are very interested in what will be allowed and what will not be allowed [the price cap].”