G7 finance ministers agreed to cap Russian oil prices

G7 finance ministers agreed to cap Russian oil prices
G7 finance ministers agreed to cap Russian oil prices

Moscow – Finance ministers and central bank governors from the G7 group of developed countries agreed to introduce a price ceiling for Russian oil and oil products. The mechanism for setting the ceiling has yet to be decided, foreign press agencies inform. The measure will include a ban on the provision of services enabling the transport of Russian oil and oil products if the purchase price exceeds a set ceiling.

On Thursday, the Deputy Prime Minister of the Russian government, Alexander Novak, called the introduction of a price ceiling “absolute absurdity” that destabilizes the entire industry. According to him, Russia will not supply oil or oil products to countries that support the establishment of a price ceiling.

The measure will enter into force on December 5 for crude oil and on February 5 of next year for refined petroleum products. These are the same dates when, as part of the EU’s sixth sanctions package against Russia, a partial embargo on the import of Russian oil and oil products into the EU will begin to apply. The United States announced a ban on Russian oil imports back in March.

“Today’s action will help deal a major blow to Russian finances, undermine Russia’s ability to wage an unprovoked war in Ukraine, and accelerate the deterioration of the Russian economy,” said US Treasury Secretary Janet Yellen. “We are already beginning to see the impact of the price cap in that Russia is accelerating efforts to negotiate bilateral oil deals at huge discounts,” she added.

According to Bloomberg, it remains unclear how effective the price cap will be, especially given the fact that some major buyers of Russian oil have yet to join it. However, US Treasury officials warned that countries not applying the price ceiling would have to find alternative ways to finance and insure purchases of Russian oil, which would be more costly and risky. This will push them to demand lower prices from Russia.

According to analysts, however, it remains crucial that the price ceiling is supported by major buyers of Russian oil, such as China, India and Turkey. “The price cap has essentially no impact unless the G7 convinces other major buyers to join,” said analyst Christopher Haine of consultancy Energy Aspects. “However, they are reluctant, even though they would avoid Western sanctions on the financing and insurance of transport,” he added. However, according to American officials, the system should work even without the official involvement of these large buyers, as they will be able to use the price ceiling as leverage to negotiate lower prices for Russian oil.

“The aim of this price ceiling on Russian oil exports is to reduce Putin’s income,” said German Finance Minister Christian Lindner. “At the same time, we want to curb rising global energy prices. This will help reduce inflation around the world,” he added.

Already in June, the G7 states announced that they would consider capping Russian oil prices as another method of putting pressure on Russia for its aggression against Ukraine. At the same time, Russia is one of the world’s largest oil exporters. This year, it could increase revenues from the sale of oil up to 337.5 billion dollars (about 8.3 trillion CZK), which is 38 percent more than last year. This follows from a document of the Russian Ministry of Economy, which is available to Reuters.

Russian Deputy Prime Minister Novak also stated that Russian companies are ready for the European Union’s December embargo on the import of Russian oil and that they can maintain production at the current level. According to the Deputy Prime Minister’s forecast, mining may amount to 520 to 525 million tons by the end of the year. Last year, Russia extracted 524 million tons of oil.

Last year, 6.8 million tons of crude oil were imported into the Czech Republic, a year-on-year increase of 10.8 percent. Half of it was imported from Russia, it appears from statistics Ministry of Industry and Trade. The second largest importer was Kazakhstan.

The President of the European Commission (EC), Ursula von der Leyen, said today that the European Union should also cap the price of gas transported by pipeline from Russia to mitigate the effects of market manipulation by Russian President Vladimir Putin. Former Russian President Dmitry Medvedev responded to her words by announcing that Moscow would stop supplying gas to the Union in that case.

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The article is in Czech

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