The G7 alliance of seven industrialized countries has announced the imposition of a price cap on Russian oil imports. One of the world’s largest economies expects to reduce Russia’s economic capacity through this. However, in response to this system, the Kremlin has threatened to stop oil exports to countries that have imposed price limits.
The Finance Ministers of Group of Seven (G7) members US, UK, Japan, Canada, Germany, France and Italy met in a virtual meeting on Friday (September 2). At the end of the meeting, they announced that services that facilitate the maritime transport of Russian crude oil and petroleum products worldwide will be banned over the price ceiling. This could result in the termination of insurance cover or financing for Russian oil shipments.
According to the joint statement, the maximum price of Russian oil will be determined by a “large coalition” of countries. It will come into effect alongside subsequent EU sanctions, which include a ban on Russian oil imports by sea from next December.
Before the announcement by the G7 countries, Russia threatened to stop oil exports to countries that imposed price caps.
Last Thursday, Russian Deputy Prime Minister Alexander Novak said, “We will not supply oil and petroleum products to any organization or country that imposes restrictions.” Because we don’t want to work without competition.
The Biden administration has been pushing for months to impose a price cap on Russian oil. Western countries have already imposed several restrictions on Russian energy imports. However, Russia continues to earn hundreds of billions of dollars a month by increasing exports to countries like India and China.
The G7 finance ministers said the price ceiling was specifically designed to limit Russia’s income and ability to finance the war while limiting the impact of the war on global energy prices, particularly on low- and middle-income countries.
But analysts say it will be very complicated to implement and manage. The limits that will be imposed on Russian oil prices have not yet been determined. Moreover, it needs massive international support to be effective.
Russia’s deputy prime minister said the proposal to impose such restrictions was “absolutely absurd”. This could destabilize the global oil market and industry.
Shortly after the G7 announcement on Friday, Russia’s state energy company Gazprom announced it would not open the Nord Stream 1 pipeline on Saturday as previously planned. In other words, Russia’s gas supply to Europe through this pipeline is closed for an indefinite period.
According to the International Energy Agency, almost half of Russia’s exports of oil and petroleum products went to Europe before the start of the Ukraine conflict last February. In 2021, the alliance imported 2.2 million barrels of crude oil, 1.2 million barrels of refined products and 5 million barrels of diesel per day. The largest buyers of Russian fuel in Europe that year were countries like Germany, Poland and the Netherlands.
Sources: CNN, Reuters
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