G7 Finance Ministers have agreed to impose a price cap on Russian oil in a bid to hit Moscow’s ability to finance the war in Ukraine. The idea behind this cap is to encourage sales of Russian oil at levels slightly above production costs to ensure Russia’s earnings are reduced while it maintains production.
Key points
- The G7 consists of the UK, US, Canada, France, Germany, Italy and Japan. The group is an organisation of the world’s seven largest “advanced” economies.
- The announcement of a price cap on Russian oil means countries that sign up to the policy will only be permitted to purchase Russian oil and petroleum products transported via sea that are sold at or below the price cap.
- Since London is a major global centre for maritime insurance, the plan is to deny shipping to oil above the price cap.
- The proposal would mean importers seeking shipping services and insurance cover from companies based in G7 and EU countries would need to adhere to a price cap to transport Russian oil.
- China and India – major trading partners for Russia – may not follow G7 policy on Russian oil.
- They have not joined the Western sanctions targeting Russia.
- The import of Russian oil makes up 44% of Russian exports and 17% of federal government revenue through taxation.
- Russia said that it would stop selling oil to countries that impose price caps on Russia’s energy resources.
