G7 countries support a plan to reduce Russian oil prices
The ceiling for the initial price of Russian oil will be set “at a level based on a set of technical inputs”.
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The Group of Seven wealthy nations on Friday approved a plan to implement a price cap mechanism for Russia’s oil exports, aiming to limit the Kremlin’s ability to fund its war in Ukraine and better protect consumers amid rising energy prices.
Finance ministers representing the G7 countries said in a joint statement that they recognized that for the European Union, consensus among the 27-nation bloc is required.
“We aim to align implementation with the timetable for relevant actions under the sixth EU sanctions package,” they said.
The maximum initial price will be set “at a level based on a set of technical inputs”.
The G7 statement added that the effectiveness and impact of the price cap will be closely monitored and reconsidered as necessary. The G7 consists of the United States, Canada, France, Germany, Italy, the United Kingdom, and Japan.
Prior to the announcement, Moscow had warned that it would stop selling oil to countries that impose price controls on Russia’s energy exports, and said that imposing restrictions on the country’s crude would lead to a major destabilization of the global oil market.
The Group of Seven first agreed to explore the possibility of imposing a ban on Russian oil shipments above a certain price in June.
Energy analysts were highly skeptical about the impartiality of the proposal, however, warning that the policy could backfire if major consumers such as China and India did not participate.
Oil prices were higher on the news. International benchmark Brent crude futures rose 2.7% to $94.89 a barrel on Friday afternoon in London, while US Brent crude futures rose 2.8% to trade at $89.10.
Russia’s G7 oil price cap comes as Western economic powers seek to drain Russia’s war chest.
Data from the International Energy Agency showed that Russian oil exports in June fell by 250 thousand barrels per day per month to 7.4 million barrels per day, the lowest level since August last year.
However, the Kremlin’s export earnings continued to rise by $700 million per month. The International Energy Agency said higher oil prices helped Russia’s crude oil export earnings reach $20.4 billion, reflecting a 40 percent jump above last year’s average.