In what we are sure will be heralded as a critical step forward in the globally unified response to Putin's invasion of Ukraine, G-7 finance ministers have agreed to implement a price cap for global purchases of Russian oil - a measure the US hopes will ease energy market pressures and slash Moscow’s overall revenues.
“We 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,” G-7 finance ministers said in a joint statement.
“The provision of such 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.”
No details were offered as to the mechanism for the buying-cartel but the stated goal set out by G7 leaders was two-pronged:
-
to limit upward pressure on global oil prices
-
to curb Russia’s revenues from oil sales.
To achieve those goals, the allies agreed to explore a new mechanism that aims to impose a ceiling on Russian oil prices. The idea behind this price cap is to permit countries that have not imposed import bans to buy Russian oil as long as it is priced at or below a predetermined price. The cap could be enforced via limits on availability of European insurance for Russian oil cargoes as well as shipping services and US finance. While G7 leaders have not indicated where the price cap would be set, it must be lower than the $80/bbl at which Russia’s Urals grade trades today (a $32/bbl discount...