New Delhi: The Group of Seven (G7) nations and Australia agreed to a $60 per barrel price cap on Russian seaborne crude oil after European Union members convinced Poland to reach a political agreement, a statement informed on Friday. The move aims to deny war resources to the Kremlin continuing its offensive in Ukraine.
The EU agreed on the price after Poland gave its support, paving the way for formal approval over the weekend, news agency Reuters reported. In a statement, the G7 and Australia informed that the price cap would take effect on December 5 or very soon thereafter.
The nations said they anticipated that any revision of the price would include a form of grandfathering to allow compliant transactions concluded before the change. “The Price Cap Coalition may also consider further action to ensure the effectiveness of the price cap,” the statement read, as quoted by Reuters.
G7 is an intergovernmental political forum of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union is its “non-enumerated member”. The price cap was G7’s idea to reduce Russia’s income from selling oil, while preventing a surge in global oil prices after an EU embargo on Russian crude takes effect on December 5.
Earlier, Poland resisted the proposed level as it probed an adjustment mechanism to keep the cap below the market price. In EU negotiations, Warsaw sought that the cap be as low as possible to drain Russia’s revenues and limit Moscow’s ability to sustain its war in Ukraine.
According to Reuters, Polish Ambassador to the EU Andrzej Sados on Friday told reporters that Poland backed the EU deal, including a mechanism to keep the oil price cap at least 5% below the market rate. The U.S. officials lauded the deal terming it unprecedented, demonstrating their resolve of opposing the Russia-Ukraine’s war.
European Commission President Ursula von der Leyen said the price cap would reduce Russia’s revenues significantly.
“It will help us stabilise global energy prices, benefiting emerging economies around the world,” von der Leyen said, adding that the cap would be “adjustable over time” to react to market developments.
The G7 price cap will let non-EU countries continue importing seaborne Russian crude oil, but it will restrict the shipping, insurance, and re-insurance companies from handling cargoes of Russian crude oil around the globe unless it is sold for less than the price cap. As the most important shipping and insurance firms are based in G7 countries, the price cap is expected to make it very difficult for Moscow to sell its oil for a higher price.
As per U.S. Treasury Secretary Janet Yellen, the cap will particularly benefit low-and medium-income countries that have borne the brunt of high energy and food prices. “With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into Putin’s most important source of revenue,” Yellen mentioned in a statement.
“This will help restrict Putin’s primary source of revenue for his war and preserve stability of global energy supplies,” she stated.