Finance ministers from the Group of Seven industrial powers on Friday pledged to put in place a system designed to cap Russia’s income from oil sales, an idea that the nations’ leaders had promised to explore at their summit in June.
The aim is to reduce Russia’s revenues and, by doing so, its ability to fund its war in Ukraine, while also limiting the impact of the war on global energy prices, whose rise has fuelled inflation around the world.
In a statement issued by Germany, which chairs the G7 this year, the ministers said they “confirm our joint political intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally.”
Providing those services “would only be allowed if the oil and petroleum products are purchased at or below a price (‘the price cap’) determined by the broad coalition of countries adhering to and implementing the price cap,” the statement said.
The statement did not give any figure for a potential price cap and also did not specify when the G7 aims to finalize the plan. In the statement, the ministers said, “we invite all countries to provide input on the price cap’s design and to implement this important measure,” calling for a “broad coalition in order to maximise effectiveness.”
Measures first explored at G7 meeting in June
When they met in June in Germany, the leaders of the G7 — the United States, Germany, France, Britain, Italy, Canada and Japan — agreed to explore the feasibility of measures to bar imports of Russian oil above a certain price.
The price cap — pushed by U.S. President Joe Biden — could work because the service providers are mostly located in the European Union or the U.K. and thus within reach of sanctions. To be effective, however, it would have to involve as many importing countries as possible, in particular India, where refiners have been snapping up cheap Russian oil shunned by Western traders.
The U.S. has already blocked Russian oil imports, which were small in any case. The European Union has decided to impose a ban on the 90 per cent of Russian oil that comes by sea, but the ban does not take effect until the end of the year.
U.S. Treasury Secretary Janet Yellen said that the G7 had taken “a critical step forward” and that “today’s action will help deliver a major blow for Russian finances and will both hinder Russia’s ability to fight its unprovoked war in Ukraine and hasten the deterioration of the Russian economy.”
“We have already begun to see the impact of the price cap through Russia’s hurried attempts to negotiate bilateral oil trades at massive discounts,” Yellen said in a statement.
Friday’s G7 statement said the group encourages other oil-producing countries to increase production in order to decrease volatility in energy markets.