During the G7 crisis meeting held on Russian airstrikes on Kyiv, no definitive stand was taken on the Russian oil price cap imposition issue. The G7, especially the US and its European members, are recovering from the effects of diplomatic tussle between the US and Saudi Arabia, as the latter entertained Russia’s request to reduce production to boost prices.
The US and its European allies have been mulling the move to impose a cap on Russian fuel prices which they believe helps Russian president Vladimir Putin fund the war on Ukraine.
The plan is expected to come into force from December 5 onwards. A cap was promised first when G7 finance ministers met on September 2.
The G7 plans to impose the price cap by preventing insurance to Russian cargoes if the oil is sold above the proposed limit and it is confident because it is estimated that 95% of the global oil tanker fleet is covered by shipping insurers who come from G7 nations, namely Canada, France, Germany, Italy, Japan, the UK and the US.
The proposed cap could be between $40-$60 a barrel.
There are however two main problems - firstly, a price has to be decided which convinces Russia to still trade with the G7 but at a lower price and secondly, how to stop Russia from selling oil to non-G7 emerging economies where demand is high.
Ukrainian president Volodymyr Zelensky earlier urged for a tough price cap to ensure ‘zero profit for the terrorist state.’
The G7 however, following their meeting only said that it is ‘continuing to cooperate to ensure energy security and affordability across the G7 and beyond’, according to a report by the Guardian.
The Guardian report said that Germany is concerned regarding the ‘wisdom of the scheme’ and how it is supposed to work alongside the ‘still to be agreed EU scheme to impose a gas price cap’.
Russia may ban energy exports to all countries who participate in the move to cap the price of Russian energy exports. The G7 also feels that several nations who are importing Russian oil are unlikely to side with the G7.
There are two restrictions on Russian energy imports that are to be imposed. One is the price cap the G7 are deliberating on and the other is an import ban imposed by the EU.
The US, UK and Canada have already stopped importing oil and the EU will ban all imported seaborne crude from Russia December 5 and all Russian refined products from February 5. Poland and Germany were given exemptions but Russia has lost three-fifths of sales to Europe.
Both restrictions will be imposed together but Germany fears that Russia will stop supply to any nation which has participated in the imposition of the price cap.
The US is busy trying to convince the Global South that a price cap will help emerging economies save more money, resulting in $160 billion in savings.