WASHINGTON- The Group of Seven countries is working to cap the price of Russian oil in an attempt to limit Moscow’s ability to fund its invasion of Ukraine, a plan analysts say could work in the long term but might boost oil prices in coming months.
Officials in G7 countries, including US Treasury Secretary Janet Yellen, say the unprecedented measure, set to begin Dec. 5, will cut the price Russia receives for oil without reducing its petroleum exports to world consumers.
Russian President Vladimir Putin could push back, causing stress in oil markets even as the plan comes together.
Below are questions about the price cap and challenges it faces.
The G7 wealthy nations — the United States, Japan, Germany, Britain, France, Italy and Canada — and the EU are hammering out details of the plan. The G7 wants to enlist other countries, including India and China, which have been snapping up heavily-discounted oil from Russia since its Feb. 24 invasion of Ukraine.
Moscow has managed to maintain its revenues through those increased crude sales to India and China.
But even if India and China don’t join, a cap could help force down prices for Asia and other consumers. US Treasury Assistant Secretary for Economic Policy Ben Harris said on Sept. 9 that if China negotiates a separate 30 percent-40 percent discount on Russian oil because of the price cap “we consider that a win.”
The consensus on the price cap level will be reached with the aid of a “rotating lead coordinator,” the US Treasury Department said in guidance issued on Friday suggesting that countries in the coalition will have a temporary leadership role as the plan proceeds.
It will likely be weeks before the price of Russian crude oil and two oil products will be decided, Harris said.
Washington-based ClearView Energy Partners has said officials have been talking about a $40-$60 per barrel range for crude. The upper end of that range is consistent with historical prices for Russian crude, while the lower end is closer to Russia’s marginal production cost, analysts say.
Coalition members with long economic and military relations with Russia could push for a higher cap, while a limit too low could take market share away from Saudi Arabia and other oil producers. “The level will be determined by both quantitative and qualitative reasons,” said Bob McNally, president of Rapidan Energy Group.
Russian crude is priced at a discount to the international Brent benchmark and the G7 wants to keep that spread wide, to keep down Russian oil revenue.
However, achieving a wide spread could mean higher prices for Western consumers as Russia is the world’s second largest crude exporter, after Saudi Arabia.
The plan agreed by the G7 calls for participating countries to deny Western-dominated services including insurance, finance, brokering and navigation to oil cargoes priced above the cap.
To secure those services, petroleum buyers would make “attestations” to providers saying they bought Russian petroleum at or below the cap.
Maritime services providers will not be held liable for false pricing information provided by buyers and sellers of Russian petroleum, the US Treasury said.
G7 officials believe the plan will work because the London-based International Group of Protection & Indemnity Clubs provides marine liability cover for about 95 percent of the global oil shipping fleet.
