In a key step to enhance Western sanctions aiming to reorder the global oil market to prevent price spikes and starve Russian President Vladimir Putin of funding for his war in Ukraine, the G7 and Australia joined the European Union in adopting a $60-per-barrel price cap on Russian seaborne crude oil.
G7’s joint statement underscored that they’re also prepared to review and adjust the maximum price as appropriate, taking into account the potential impacts on coalition members and low and middle-income countries as well as the market developments.
The agreement, as the US Treasury Secretary Janet Yellen pointed out in a statement, will help Western allies preserve the stability of global energy supplies while simultaneously restricting Russia’s primary source of revenue for its illegal war in Ukraine.
The purpose of the price cap – an idea proposed by the Group of Seven nations’ wealthy democracies – is to prevent a new surge in energy prices followed by further fueling of inflation as a result of a potential sudden loss of Russian oil to the world.
After a last-minute flurry of negotiations, EU ambassadors agreed on a $60 per barrel price cap after holdout Poland dropped its objections, enabling formal approval over the weekend.
Although G7’s initial proposal was for a price cap of $65-$70 with no adjustment mechanism, Poland, Lithuania, and Estonia had pushed for a lower price since Russian Urals crude already traded lower.
The more hawkish member states also added further conditions such as a review of the price cap in mid-January and every two months after that,
EU member states had wrangled for days over the details of the deal, with Warsaw, the last holdout, seeking to set the cap as low as possible.
Since the EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies takes effect on Monday, Europe needed to set the discounted price that other nations will pay by then.