G-7 agrees to historic $60 a barrel cap on Russian oil to limit war revenues
Jeremy Beaman
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The Group of Seven nations’ much-anticipated price cap on Russian oil will be set at $60 per barrel, the Treasury Department announced Friday, days before the ambitious and novel strategy to punish Russia for the war in Ukraine takes effect.
Agreeing to a price was a final step in the monthslong process of negotiations between participants over the cap mechanism, which was developed to cut off Russian President Vladimir Putin’s war funding from the petroleum trade without taking oil supply off the market at the risk of sending global markets into a tailspin. Russia is a top-three producer and exporter of oil globally.
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“Together, the G7, European Union, and Australia have now jointly set a cap on the price of seaborne Russian oil that will help us achieve our goal of restricting Putin’s primary source of revenue for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies,” said Treasury Secretary Janet Yellen, who promoted the idea of the cap over the course of the year. “Today’s announcement is the culmination of months of effort by our coalition, and I commend the hard work of our partners in achieving this outcome.”
Under the cap, participating governments will prevent companies in their jurisdiction from providing insurance, trading, or other services to shipments of Russian oil sold over a price of $60 per barrel, substantially lower than the global benchmark, which opened Friday near $87 per barrel.
“With the price cap, we’re creating clear incentives for key actors in the global oil market — Russia, oil-importing countries, and market participants — to maintain the flow of Russian oil but at a discounted price,” a senior administration official told reporters Friday.
The prospect alone of a price cap has already been cutting into Russia’s revenue, giving developing nations the capacity to negotiate lower prices on Russian products.
“G-7 services will be on offer to these countries going forward for the purchase of Russian seaborne oil as long as it’s set below a certain price, helping these economies gain access to cheap, affordable energy going forward,” the official said.
The G-7, a coalition of the wealthiest nations globally, agreed to pursue a price cap at its summit over the summer. Non-member Australia has also agreed to participate.
The price cap will go into effect on Monday, Dec. 5, to coincide with the European Union’s ban on seaborne imports of Russian crude that same day.
President Joe Biden signed a ban on imports of Russian petroleum and other fossil fuels shortly after the invasion of Ukraine.
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The European Union, being more reliant on Russian fossil fuels, took a more incremental approach, first embargoing coal and later agreeing to a two-step embargo on Russian petroleum imports.
The EU will ban imports of Russian refined products beginning in February 2023.