G7 agrees Russian oil price cap to slash funding for Putin’s war in Ukraine


The G7 agreed to impose a Russian oil price cap on Friday to slash funding for Putin’s war in Ukraine, while keeping crude flowing to avoid price spikes.

However, there are concerns among some officials that the cap could be scuppered without the participation of major importers such as China and India, which have sharply increased their purchases of Russian crude since Vladimir Putin invaded.

And in a threat to the G7 nations, the Kremlin warned earlier on Friday that it would stop selling oil to countries that impose price caps on Russia’s energy resources, saying such a move would lead to significant destabilisation of the global oil market.

The G7 agreed to impose a Russian oil price cap on Friday to slash funding for Putin’s war in Ukraine, while keeping crude flowing to avoid price spikes. Pictured: A view shows the Alexander Zhagrin oilfield, operated by Gazprom Neft, on August 30, 2022

The ministers from the club of wealthy industrial democracies confirmed their commitment to the plan after a virtual meeting.

They said, however, that 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. 

‘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 G7 ministers said.

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 ministers said they would work to finalize the details, through their own domestic processes, aiming to align it with the start of European Union sanctions that will ban Russian oil imports into the bloc starting in December.

The Group of Seven consists of Britain, Canada, France, Germany, Italy, Japan and the United States.

The 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 will invite their input into the plan.

However, some G7 officials expressed concerns that the price cap would not be successful without participation of major importers such as China and India.

Such countries have sharply increased their purchases of Russian crude since Moscow launched its invasion in February. But others have said China and India have expressed interest in buying Russian oil at an even lower price in line with the cap.

There are concerns among some officials that the cap could be scuppered without participation of major importers such as China and India, which have sharply increased their purchases of Russian crude since Russia invaded in February. Pictured: Indian Prime Minister Narendra Modi, left, and Chinese President Xi Jinping are seen together in 2016

There are concerns among some officials that the cap could be scuppered without participation of major importers such as China and India, which have sharply increased their purchases of Russian crude since Russia invaded in February. Pictured: Indian Prime Minister Narendra Modi, left, and Chinese President Xi Jinping are seen together in 2016

In a threat to the G7 nations, the Kremlin warned earlier on Friday that it would stop selling oil to countries that impose price caps on Russia's energy resources, saying such a move would lead to significant destabilisation of the global oil market. Pictured: An oil rig in Russia

In a threat to the G7 nations, the Kremlin warned earlier on Friday that it would stop selling oil to countries that impose price caps on Russia’s energy resources, saying such a move would lead to significant destabilisation of the global oil market. Pictured: An oil rig in Russia

Enforcing the cap would rely heavily on denying London-brokered shipping insurance, which covers about 95 percent of the world’s tanker fleet, and finance to cargoes priced above the cap. 

But analysts say that alternatives can be found to circumvent the cap and market forces could render it ineffective

Despite Russia’s falling oil export volumes, its oil export revenue in June increased by $700 million from May due to prices pushed higher by its war in Ukraine, the International Energy Agency said last month.

The G7 finance ministers’ statement follows up on their leaders’ decision in June to explore the cap, a move Moscow says it will not abide by and can thwart by shipping oil to states not obeying the price ceiling.

The U.S. Treasury has raised concerns that the EU embargo could set off a scramble for alternative supplies, spiking global crude prices to as much as $140 a barrel, and it has been promoting the price cap since May as a way to keep Russian crude flowing.

Russian oil prices have risen in anticipation of the EU embargo, with Urals crude trading at an $18-to-$25 per barrel discount to benchmark Brent crude, down from a $30-to-$40 discount earlier this year.

The Group of Seven consists of Britain, Canada, France, Germany, Italy, Japan and the United States. Pictured: The leaders of the G7 are seen meeting in June this year

The Group of Seven consists of Britain, Canada, France, Germany, Italy, Japan and the United States. Pictured: The leaders of the G7 are seen meeting in June this year

The EU earlier this year imposed a partial ban on Russian oil purchases, which Brussels says will halt 90% of Russia’s exports to the 27-member bloc when it fully comes into force.

European Commission head Ursula von der Leyen said on Friday it was time for the EU to consider a similar price cap on Russian gas purchases.

Also on Friday, the Kremlin said Russia would stop selling oil to countries that impose price caps on Russia’s energy resources – caps that Moscow said would lead to significant destabilisation of the global oil market.

‘Companies that impose a price cap will not be among the recipients of Russian oil,’ Kremlin spokesman Dmitry Peskov told reporters in a conference call, endorsing comments made on Thursday by Deputy Prime Minister Alexander Novak.

‘We simply will not cooperate with them on non-market principles,’ Peskov said.

Peskov said it was European citizens who were paying the price for such moves, imposed in response to Moscow’s military campaign in Ukraine.

‘Energy markets are at fever pitch. This is mainly in Europe, where anti-Russian measures have led to a situation where Europe is buying liquefied natural gas (LNG) from the United States for a lot of money – unjustified money. U.S. companies are getting richer and European taxpayers are getting poorer,’ Peskov said.

The ministers from the club of wealthy industrial democracies confirmed their commitment to the plan after a virtual meeting on Friday. Pictured: The Alexander Zhagrin oilfield operated by Gazprom, in Russia

The ministers from the club of wealthy industrial democracies confirmed their commitment to the plan after a virtual meeting on Friday. Pictured: The Alexander Zhagrin oilfield operated by Gazprom, in Russia

Russia was studying how a price ceiling on its oil exports might affect its economy, Peskov said. ‘One thing can be said with confidence: such a move will lead to a significant destabilisation of the oil markets.’

Before Russia sent tens of thousands of troops into Ukraine in February, Europe was the destination for almost half of Russia’s crude and petroleum product exports, according to the International Energy Agency.

The bloc imported 2.2 million barrels per day (bpd) of crude, 1.2 million bpd of refined products and 0.5m bpd of diesel in 2021, with Germany, Poland and the Netherlands the largest customers.

News of the price cap came as it was announced that Russian banks lost $25billion in the first half of the year as sanctions over the war in Ukraine caused them go into the red for the first time in seven years.

Dmitry Tulin, First Deputy Chairman of the Central Bank, disclosed the banking sector earnings on Friday – the first time Russia has done so since February.

Since president Vladimir Putin’s forces invaded Ukraine, the Kremlin has treated financial reports as closely guarded state secrets to avoid revealing the true scale of the economic damage caused by Western sanctions.

And while Russia has been able to deploy emergency capital controls to limit the damage to the rouble, analysts say this has only papered over the cracks.

Tulin said the country’s banks had lost a combined 1.5 trillion roubles ($24.86 billion) in the first six months of 2022, against the backdrop of the on-going invasion.

Russian banks lost $25billion in the first half of the year as Ukraine sanctions caused them go into the red for the first time in seven years. Dmitry Tulin, First Deputy Chairman of the Central Bank, disclosed the figure on Friday - the first time Russia has done so since February

Russian banks lost $25billion in the first half of the year as Ukraine sanctions caused them go into the red for the first time in seven years. Dmitry Tulin, First Deputy Chairman of the Central Bank, disclosed the figure on Friday – the first time Russia has done so since February

Around two-thirds of the losses seen by banks are related to foreign currency operations, he said in an interview with the RBC business daily.

There is a ‘more than 50 percent chance’ that losses for the year would exceed the 1.5 trillion rouble figure from the first term, he added.

Banking losses were concentrated among Russia’s largest banks, the chairman said. 

Loss-making institutions recorded a combined 1.9 trillion rouble ($31.60 billion) loss, compared to profitable lenders that earned a combined 400 billion roubles ($6.65 billion) – combining to make the net loss of 1.5 trillion roubles.

The rouble spent most of August near 60 per-dollar. 

Volatility has subsided since it hit a record low of 121.53 per dollar in Moscow trade in March, soon after Russia sent tens of thousands of troops into Ukraine. 

It then rallied to its strongest in seven years of 50.01 per dollar in June.

So far this year, the rouble has been the world’s best-performing currency buoyed by emergency capital controls rolled out by the central bank in a bid to halt a mass sell-off. This helped to avoid an economic meltdown that many had predicted.

Sanctions imposed on Russia by the West after it sent its troops into Ukraine in late February initially sent its economy into a freefall, and late last month Russia defaulted on its foreign debt for the first time in more than 100 years. 

EU leaders agreed in May to embargo most Russian oil imports by the end of the year, while more than 1,000 western companies pulled out of Russia. Sanctions have also been placed on several individuals among Russia’s elite oligarchs.

The Kremlin responded to the sanctions by hiking rates and demanding ‘unfriendly’ countries pay for Russian gas in roubles, in an attempt to shore up the currency.    



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