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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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G7 Presses Ahead With Russian Oil Price Cap

  • G7 wants oil price cap on Russian crude installed by December 5th.
  • December 5 is also the date that the EU's ban on Russian seaborne crude oil imports goes into effect.
  • A price cap on Russian oil purchases would theoretically impede the intake of Russia's oil revenues that are funding its invasion of Ukraine.

The G7 are pressing on with their price cap on Russian oil, targeting a date of December 5 for having a mechanism in place to achieve this, an anonymous senior G7 official told Reuters on Wednesday.

December 5 is also the date that the EU's ban on Russian seaborne crude oil imports goes into effect.

"The goal here is to align with the timing that the EU has already put in place. We want to make sure that the price cap mechanism goes into effect at the same time," the official said.

A price cap on Russian oil purchases would theoretically impede the intake of Russia's oil revenues that are funding its invasion of Ukraine. The price cap plan the G7 has cooked up, however, is not without its challenges.

For starters, the Group of Seven richest economies has not yet spelled out how such a plan would work, such as how to enforce such a price cap. To be successful, the plan would need broad support from all major Russian crude buyers, including India and China. More importantly, it would need Russia to go along with the price cap—something Russia said it would not do.

Nevertheless, the G7 is still hoping that setting a price cap that is above Russia's production costs would incentivize Russia to go along.

Russian Deputy Prime Minister Alexander Novak already stated last week that Russia would not export oil to the market if the price cap was set below the cost of producing the oil. Just days after Novak's statement, Russia Central Bank head Elvira Nabiullina took it a step further: Russia would not sell oil to any country participating in any price cap, implying that even if the price cap were set above production costs, Russia would refuse to go along with the price cap plan by merely refusing to sell those countries any crude oil.

Instead, Nabiullina said that Russia would sell oil only to the countries that don't enact a price cap.

By Julianne Geiger for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on July 27 2022 said:
    Capping prices of Russian crude and petroleum products is doomed to fail. Russia would simply cut its oil exports to countries participating in any price cap and increase its exports to those that don’t enact a price cap such as China, India, Turkey and Asian oil traders who will scoop all Russian oil exports at a discount. Moreover, Russia could afford to reduce its crude exports by 3.0 million barrels a day (mbd) without affecting its oil revenues. Meanwhile Brent crude price could surge to $120 a barrel.

    Western leaders are letting their enmity to Russia cloud their judgement to the extent that they are unable to separate the wheat from the chafe. Every time they talk about banning Russian oil or capping it, oil prices surge further forcing Western customers to pay steeper energy bills while President Putin is raking in cash.

    Even without capping, the single most important problem that is adversely impacting global supplies and prices is the ever-shrinking global spare oil production capacity which is running very low. This will keep the market on edge and also send crude oil prices in a steep upward trajectory soon.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Kris Poole on July 27 2022 said:
    Wouldn't be better for G7 to reflect and talk PEACE with Russia, instead of escalating conflict.
    G7, NATO and U.S. are throwing everything at Russia, but the kitchen sink. So far, NOTHING has worked. What makes them think, that this time is going to be different? This is just another stupid, ridicules attempt by the U.S. war hawks, neocons to see who blinks first.

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