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Members of the G7 have agreed to set a fixed price for Russian oil exports as a cap rather than a price set as a discount to a benchmark, Reuters has reported, citing an unnamed source familiar with the discussions.
The price itself has yet to be determined, the source said, adding that, according to the G7, "This will increase market stability and simplify compliance to minimize the burden on market participants.”
Earlier, a price range in the mid-60s was mentioned as a possible target for the cap as it represented the range, in which Russian oil has traded before the last rally.
It has taken the G7 several months to get to this point, with skeptics warning along the way that it might not be the wisest idea, especially after Russia’s President Vladimir Putin said plainly that Russia will not sell oil to countries enforcing a cap and Deputy Price Minister Alexander Novak echoed the statement.
The World Bank was the latest to warn the G7 a cap will not work unless there were more countries on board with it. The implied countries are most likely China and India, the biggest buyers of Russian crude right now, both of which have declined to participate in a price cap scheme.
Initially, getting China and India on board was a top priority for the G7 team but this appears to have changed, according to U.S. Treasury Secretary Janet Yellen who has spearheaded the price cap effort.
"For us, success is going to be not how many countries raise their hand to say 'We endorse what you're doing, we're part of the coalition.' We're not looking for that. What we want to see is that Russian oil continues to flow into the market, and that countries are using the leverage provided by the existence of this cap to bargain lower prices,” Yellen said last month.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.