G7 and allies approve Russian oil price cap to ‘slow war machine’

The G7 and its allies have agreed on a cap on Russian seaborne crude oil as part of an international campaign to curb Russia’s ability to wage war.

In a statement, the G7 nations and Australia announced the $60 (€57; £48) per barrel price cap would come into effect on 5 December or “very soon thereafter”.

It aims to reduce Moscow’s income from selling oil while tempering the potential for any spike in global prices as the Ukraine war enters its ninth month.

After a rush of eleventh-hour negotiations, the EU presidency, held by the Czech Republic, said in a statement that “ambassadors have just reached an agreement on price cap for Russian seaborne oil”.

The decision must still be officially approved with a written procedure but is expected to go through.

They needed to set the discounted price that other nations will pay by Monday when an EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies take effect.

White House National Security Council spokesman John Kirby welcomed EU’s agreement on Friday, saying it would slow president Vladimir Putin’s “war machine”.

The price cap aims to prevent a sudden loss of Russian oil to the world that could lead to a new surge in energy prices and further fuel inflation.

The $60 figure sets the cap near the current price of Russia’s crude, which recently fell below $60 a barrel. Some have criticised the cap as not low enough to cut into one of Russia’s main sources of income.

It is still a big discount to international benchmark Brent, which traded at about 87 dollars per barrel on Friday but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

There is a big risk to the global oil market of losing large amounts of crude from the world’s number two producer. It could drive up petrol prices for drivers worldwide, which has stirred political turmoil for prime minister Rishi Sunak’s government and leaders in other nations.

Europe is already mired in an energy crisis, with governments facing protests over the soaring cost of living, while developing nations are even more vulnerable to shifts in energy costs.

The costs of oil and natural gas spiked after demand rebounded from the pandemic and then the invasion of Ukraine unsettled energy markets, feeding Russia’s coffers.

Russia exports roughly five million barrels of oil a day.

On Saturday morning, a senior Ukrainian presidential aide said the price cap should be lowered to $30 per barrel to hit Russia’s economy harder.

“This was everything that was proposed by the McFaul-Yermak group, but it would be necessary to lower it to $30 to destroy the enemy’s economy quicker,” Andriy Yermak, head of Ukraine’s presidential administration, wrote on Telegram.

Reporting by agencies