G7 agrees to price cap on Russian oil

G7 finance ministers gathered for a summit in Elmau, Germany, on Friday said they agreed to implement price caps on Russian oil to prevent Moscow from profiting from its war against Ukraine.

The initial price cap will be calculated and adjusted accordingly, G7 finance ministers said.

US Treasury Secretary Janet Yellen said in a statement the price cap deal would help deliver a major blow to Russia's finances and hinder its ability to finance its war against Ukraine.

The price cap helps "our dual goals of putting downward pressure on global energy prices while denying [Russian President Vladimir] Putin revenue to fund his brutal war in Ukraine," the ministers' statement said.

It was not clear when the price cap would be implemented. The G7 said, "We invite all countries to provide input on the price cap's design and to implement this important measure."

What did G7 ministers say?

The German Finance Ministry released a joint statement noting that "today we confirm our joint political intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally."

The statement concluded, "The provision of such services would only be allowed if the oil and petroleum products are purchased at or below a price ('the price cap') determined by the broad coalition of countries adhering to and implementing the price cap."

The G7 ministers said they planned "to align implementation with the timeline of related measures within the EU's sixth sanctions package."

Japanese Finance Minister Shunichi Suzuki said he welcomed the price cap and wanted the agreement implemented soon. Suzuki told reporters that it could help offset rising energy prices and inflation.

"Implementing a price cap is significant. It's important to materialize what was agreed quickly," Suzuki told reporters.

What has Russia said?

Kremlin spokesman Dmitry Peskov said Russia would have limited choice but to circumvent countries participating in the price cap's implementation and would instead continue to sell to countries like India and China that are thirsty for cheap oil.

"We simply will not cooperate" with countries adhering to the G7's price cap "on non-market principles," Peskov said.

What is behind the deal?

When G7 leaders met in Elmau in June, they agreed to consider measures that would bar imports of Russian oil above a certain level.

US President Joe Biden supports the price caps. Service providers are predominantly located in the EU and the UK and are within the reach of sanctions.

The US Treasury had expressed concerns that a complete EU ban on Russian oil would send the price of crude spiking and a scramble for alternative supplies, whereas a price cap would help keep Russian crude flowing.

Though it bought little oil from Russia to begin with, the US has banned the import of Russian oil. The EU, whose members are more dependent on Russian energy, has barred 90% of maritime imports of Russian oil though that will only take effect at the end of the year.

ar/wd (AFP, AP, dpa, Reuters)