Topline
Group of Seven countries announced Friday an agreement on a long-discussed price cap on purchases of Russian oil, shortly after the Kremlin threatened it won’t export oil to countries participating in the measure, while crude oil prices climbed.
Key Facts
Financial ministers of the G-7, which consists of Canada, France, Germany, Italy, Japan, the U.S., the European Union and the U.K., announced the price cap in a joint statement, explaining it hinders “Russia’s ability to fund its war of aggression whilst limiting the impact of Russia’s war on global energy prices.”
It remains unclear what the price cap will be, when it will go into effect or what other countries will join the measure, and the statement noted the cap will need unanimous approval from all 27 EU members.
The move, under discussion for several months, was not met kindly in Moscow, as Kremlin spokesman Dmitry Peskov said Friday Russia won’t supply oil to partaking countries, saying the cap is based on “non-market principles.”
Peskov’s comments may just be another empty threat from the Kremlin, but the EU could ill afford to go cold turkey on Russian oil, as more than a third of the bloc’s oil came from Russia prior to the invasion, and Russian oil still flows into Europe despite the EU’s pledge to ban most oil imports from the country.
Oil prices climbed slightly Friday morning, with the price of international benchmark Brent crude rising 2.5% to $94.70 per barrel and U.S. benchmark West Texas Intermediate rising 2.5% to $88.75, though that increase was also driven by Friday’s OPEC+ meeting where output cuts are possible.
Key Background
Several outlets reported in June that the G-7 was closing in on an agreement to set a price cap on Russian oil, following a meeting of the group’s heads of state where they agreed on several retaliatory measures, including a ban on Russian gold exports. The cap is expected to go into effect in December for crude products and in February for refined products, according to the Financial Times. Crude oil prices skyrocketed after Russia invaded Ukraine in February, with Brent crude climbing over $120 per barrel in March, before declining in recent months near pre-invasion levels.
Crucial Quote
The price cap will “hasten the deterioration of the Russian economy,” U.S. Secretary Treasury Janet Yellen said in a statement. “This price cap is one of the most powerful tools we have to fight inflation and protect workers and businesses in the United States and globally from future price spikes caused by global disruptions.”
Chief Critic
Gal Luft, co-director of the Washington, D.C. energy think tank Institute for the Analysis of Global Security, called the cap a “ridiculous idea” in an interview with CNBC in July, predicting that oil prices could climb to $140 per barrel.
Further Reading
G-7 Leaders Nearing Price Cap On Russian Oil Funding Putin’s War Chest (Forbes)
