The Group of Seven most industrialized countries (G7) said they plan to implement a price cap for global purchases of Russian oil.
“Today, the G7 took a critical step forward in achieving our dual goals of putting downward pressure on global energy prices while denying Putin revenue to fund his brutal war in Ukraine. By committing to finalize and implement a price cap, the G7 will significantly reduce Russia’s main source of funding for its illegal war, while maintaining supplies to global energy markets by keeping Russian oil flowing at lower prices,” US Treasury Secretary Janet Yellen praised the decision in her statement.
Janet Yellen explained that this will help deliver a major blow to Russian finances. It will both hinder Russia’s ability to fight its unprovoked war in Ukraine and hasten the deterioration of the Russian economy.
The price cap will be implemented in line with the timing of European Union sanctions banning seaborne imports of Russian crude, which are set to kick in on December 5, 2022.
It remains unclear how many countries have signed up to put limits on Russia, and there is no sign that the two largest buyers - China and India - will do so. For its part, the Kremlin has said it won’t sell to anyone who joins the price-cap coalition.
However, it doesn’t mean Russia will not receive revenue from energy exports - the price cap will be set above Russia’s production costs. The coalition plans to set a specific price point for Russian crude, and two different ones for refined products, the officials said.
“The initial price cap will be set at a level based on a range of technical inputs and will be decided by the full coalition in advance of implementation in each jurisdiction,” G7 ministers said in the statement.
It is hard to say right now how much of a blow this will really be to Russia and its ability to wage war. But it definitely will cut some of the revenue from one of the most important sources of income for the Russian budget. Supplementing the price cap with our steps targeting Russia’s energy revenues, such as a gas price cap suggested by EU Commission chief Ursula von der Leyen, will help to deprive Russia’s war machine of money effectively.