G7 says Russian oil price cap will be ready ‘in the coming weeks’

A plan to limit the price of Russian oil exports is nearing completion, the G7 said on Friday, giving details of how they plan to reduce a key source of revenue for the Kremlin while limiting the impact on supply and global prices .

The G7 agreed in principle on the price cap in September in response to President Vladimir Putin’s war in Ukraine, but ministers are still finalizing the details of its implementation.

In the first eight months of 2022, Russia earned 7.3 trillion rubles ($117 billion) from oil and gas sales, about 30 percent of the federal budget for the full year.

The G7 decided in September that the cap will work, allowing Western companies to insure Russian oil exports by sea as long as the crude was sold at a price below the cap.

“We will complete the implementation of the price cap for Russian sea oil in the coming weeks,” the ministers said in a joint statement after two days of talks in Germany.

The G7 includes the US, Japan, Germany, the UK, France, Italy and Canada. Australia is also involved in the plan.

The commitment comes a day after the UK announced it would cut off Lloyd’s of London’s vital insurance market for ships carrying Russian oil, with an exemption for any countries that sign up for the price cap.

Western officials say the initiative’s success will depend on how many countries outside the G7 decide to sign up or buy at – or below – the cap, with China and India as two critical ones given their size and long history of oil purchases from Russia goals are viewed.

Moscow has vowed not to sell oil to countries implementing the cap. New Delhi and Beijing have shown no signs of adopting it. US officials hope that even if India and China operate outside the cap, it will still be used as a bargaining chip to negotiate lower prices from Russia and curb Moscow’s revenues.

G7 members have agreed that the cap will be set at a fixed price rather than a floating rate tied to existing benchmarks such as Brent crude, according to a coalition official, which helps set the international price.

Buyers of Russian oil below the cap are also allowed to resell the oil at market prices in their domestic markets or when it is transported to another country by pipeline, the coalition source said. But any resale that involves transporting the oil by sea would have to abide by cap rules, capping the price at which it could be resold.

Traders will not be able to resell sea shipments of oil at market prices, the coalition official said. However, Russian oil that has been refined into fuels such as diesel or gasoline can be sold at market prices.

James O’Brien, head of sanctions coordination at the US State Department, said Friday that the cap would “certainly be ready” for implementation by December 5, the effective date of EU and UK sanctions on Russian crude become effect.

Companies in the EU, US and UK will remain barred from importing Russian oil as their bans on Russian imports at sea will replace the cap sought outside of those countries.

“Price caps have been discussed long enough for market participants to understand they are coming and give their views on how best to implement them. Good technical discussions [are] ongoing on pricing and governance issues,” said O’Brien.

“It’s very simple. It’s just an insurance limitation,” O’Brien said. “So someone who runs a tanker knows: they know how much oil they have, they know how much coverage they’re going to have.”

US officials have stressed that they want to set the price at a level well above production costs for Russia to keep oil flowing, but far enough below the market price to encourage countries like China and India to participate and spark expectations that it could be fixed somewhere near $60 a barrel.

“India and China are major importers of Russian oil. Our goal is to bring Russian oil to the market. India and China are very tough price negotiators, so I assume they don’t want to pay full price,” O’Brien said while visiting Brussels to meet European Commission officials on sanctions.

“They are very interested in what is allowed and what is not [the price cap].”

https://www.ft.com/content/3ff17b4f-649a-41ee-8db4-d3721f018b9c G7 says Russian oil price cap will be ready ‘in the coming weeks’

Adam Bradshaw

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