Russia has rejected the G7’s $60 price cap on its oil exports and has threatened to cut supplies to nations that endorse the measure. According to the grouping, the price cap aims to “prevent Russia from profiting from its war of aggression against Ukraine.”
On Friday, Australia, the United Kingdom (UK), Canada, Japan, the United States (US) and the 27-member European Union (EU) announced their decision to pay no more than $60-per-barrel for Russian oil imports.
The EU noted in a statement that its announcement marks the beginning of a 45-day transition period, during which vessels carrying Russian crude oil that was purchased and loaded before 5 December must be unloaded at the final port of destination before 19 January, 2023.
The cap will be reviewed every two months and set at least 5% below the average market price for Russian oil and petroleum products.
The EU agreement on an oil price cap, coordinated with G7 and others, will reduce Russia’s revenues significantly.
— Ursula von der Leyen (@vonderleyen) December 2, 2022
It will help us stabilise global energy prices, benefitting emerging economies around the world. pic.twitter.com/3WmIalIe5y
European Commission President Ursula von der Leyen said in a Twitter post that “the EU agreement on an oil price cap, coordinated with G7 and others, will reduce Russia’s revenues significantly.”
“It will help us stabilise global energy prices, benefitting emerging economies around the world,” she added.
Meanwhile, US Treasury Secretary Janet Yellen praised the measure for helping developing countries deal with inflated food prices and high energy prices.
“With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into (Russian President Vladimir) Putin’s most important source of revenue,” the US diplomat said in a statement.
Today our coalition set a cap on the price of seaborne Russian oil — a result of months of effort and a sign of our united resolve. This will help restrict Putin’s primary source of revenue for his war and preserve stability of global energy supplies. https://t.co/JJDSGM5RJq pic.twitter.com/nVOqWV4r9b
— Secretary Janet Yellen (@SecYellen) December 2, 2022
The G7’s price limit is set to take effect today, the same day that the EU’s embargo on Russia’s seaborne oil takes effect.
The Russian embassy in Washington criticised the US-led move, saying, “Steps like these will inevitably result in increasing uncertainty and imposing higher costs for raw materials’ consumers.”
Accusing the West of “flirting” with a “dangerous and illegitimate instrument,” the embassy asserted that the Kremlin remains “confident that Russian oil will continue to be in demand.”
Similarly, Kremlin spokesperson Dmitry Peskov assured that Russia “will not accept this cap.”
He noted that Russia is in the midst of analysing the measure and would make an appropriate response following its conclusion.
Oil price cap for crude oil and petroleum oils from Russia will become applicable as of tomorrow.
— Josep Borrell Fontelles (@JosepBorrellF) December 4, 2022
Closely coordinated with our partners, the cap will drastically reduce Russia's revenues, stabilise global energy prices and mitigate adverse energy supply consequences. https://t.co/VCDdjPV8WF
To this end, an anonymous source told Reuters that Moscow is putting together a decree that would prohibit Russian firms and suppliers from dealing with countries and companies abiding by the cap.
Echoing the pledge, Mikhail Ulyanov, Russia's Permanent Representative to International Organizations in Vienna, warned in a tweet on Saturday that “Starting from this year Europe will live without Russian oil.”
“Moscow has already made it clear that it will not supply oil to those countries that support anti-market price caps. Wait, very soon the EU will accuse Russia of using oil as a weapon,” he cautioned.
Furthermore, Russian Deputy Prime Minister Alexander Novak warned on Sunday that the G7’s penalising move would harm the global economy and violate World Trade Organization standards.
We welcome the work by the EU to stabilize energy prices while reducing Russia’s revenue from energy exports, crippling its ability to finance its unjustified war in Ukraine. The G7, EU, and Australia have now jointly set a cap on the price of seaborne Russian oil.
— Secretary Antony Blinken (@SecBlinken) December 3, 2022
He hinted that Russia, the world’s second-largest oil exporter after Saudi Arabia, is “working on mechanisms” to retaliate.
“We will sell oil and oil products only to countries that will work with us on market conditions, even if we would have to lower production,” the New York Times quoted him as saying on Russian state news network Rossiya-24.
However, Poland and Estonia, leading European critics of the Ukraine war, have insisted that the limit must be as low as $30 in order to truly make a dent in the Russian economy.
Seconding this, Andriy Yermak, the head of the Ukranian President’s office, wrote on Telegram that “It would be necessary to lower it to $30 in order to destroy the enemy’s economy faster.”
It's no secret we wanted the price to be lower.
— Kaja Kallas (@kajakallas) December 2, 2022
Our experts estimate that a price between 30-40 dollars is what would substantially hurt Russia.
However, this is the best compromise we could get today.
We will have the first review of the price already in mid-January. 4/
Zelensky, too, criticised the G7’s measure on Saturday, saying that it still falls short of successfully paralysing the Russian economy and curbing its military’s aggression against Kyiv.
During a nightly address, the Ukranian leader accused the G7 of “trying to avoid hard decisions.”
“The logic is obvious: If the price limit for Russian oil is $60 instead of, for example, $30, which Poland and the Baltic countries talked about, then the Russian budget will receive about $100 billion a year,” he said.
“This money will go not only to the war and not only to Russia’s further sponsoring of other terrorist regimes and organizations. This money will also be used to further destabilize precisely those countries that are now trying to avoid big decisions,” Zelensky warned.
Zelensky’s criticism is based on the fact that the current price cap of $60 per barrel is not much of a step down from the $67, where it closed on Friday. He insists that this will incentivise Russia to continue selling its highly-prized commodity for slightly lesser profits.
Together with @SzSz_velSek 🇵🇱 and @Jovita_Pra 🇱🇹 we released a joint statement to address the agreement on the Oil Price Cap.
— Urmas Reinsalu (@UrmasReinsalu) December 3, 2022
We need to continue provide our support to Ukraine by cutting off Russia's ability to finance this war. pic.twitter.com/S9qnmikmBm
The EU and the G7 will review the price cap every two months, with the first review scheduled to take place in mid-January.
“This review should take into account ... the effectiveness of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments,” the European Commission has stated.
The bloc will also impose a similar measure against Russian petroleum products in early February, though its cap has not yet been agreed upon.
The $60 price cap implies that only Russian oil bought for less than this amount will be allowed to transit with the help of G7 and EU tankers, insurance companies, and credit institutions.
As most shipping and insurance companies are based within the G7, this cap is designed to prevent Moscow from selling its oil at a higher price. However, in order for the move to be truly effective, the several components of Russian oil’s supply chain would have to abide by the rule.
Insurance and shipping agencies have warned that such paperwork could easily be falsified by those seeking Russian exports.