G-7 Set to Back Plan to Introduce Cap on Russian Oil Price

G-7 finance ministers are meeting Friday, where they are expected to formally back the plan, according to two people familiar with the matter. The G-7 plan, which is part of broader efforts to punish Russia for its military invasion of Ukraine, would allow buyers of Russian oil under a capped price to continue getting crucial services like financing and insurance for tankers.

The G-7 discussions were progressing well, one of the people said, and that the planned joint statement would be relatively detailed, including a price range for the planned cap on Russian oil purchases and a possible date when the measure could kick in.

Oil prices slightly pared gains on the news as traders grappled with the probability of such a regime being imposed and any impact that might have.

Once the G-7 support is official, diplomats will have to convince European Union member nations to amend its sixth round of sanctions on Russia over the invasion of Ukraine — and that may still prove to be tough. That package, which prohibits the purchase of Russian oil starting Dec. 5, included a ban on the use by third countries of the bloc’s companies for oil-related insurance and financial services.

But it remains unclear how effective a price-cap regime would be, particularly since some of Russia’s biggest buyers haven’t agreed to join. India is reluctant to formally join a price-cap scheme, since its industry worries it could lose out to other buyers on the chance to buy discounted Russian crude, according to people familiar with the views of Indian firms.

US Deputy Treasury Secretary Wally Adeyemo visited India last month, where said the coalition for putting a price cap on Russian oil has broadened and a number of countries have joined, while declining to name them.

It also won’t be easy to get the EU’s full backing. Hungary, which has maintained closer relations with Russia, held up agreement on the original sanctions package for weeks as the bloc tried to reach a deal on targeting Russia’s energy sector. Budapest has signaled that it would oppose any oil price cap, signaling another potentially awkward political fight.

Russia said Friday that it won’t sell oil to nations that impose a price cap on its oil. “We simply won’t interact with them on such non-market principles,” Kremlin spokesman Dmitry Peskov told reporters on a conference call, adding that Russian oil will find alternative markets.

The US and its allies have grappled with how best to sanction Russia after its invasion rattled energy markets and sent crude prices soaring. The G-7 — which also includes Germany, the UK, France, Italy, Japan and Canada — pledged earlier this year to curb reliance on Russian energy, including “by phasing out or banning the import of Russian oil.”

G-7 leaders announced at a June summit in Elmau, Germany, that they would examine the price cap plan. But German Chancellor Olaf Scholz insists that the price cap can only work properly if it’s introduced globally and supported by more than just the G-7 countries. The backing of big buyers of Russian oil, such as India and Turkey, is seen as particularly crucial.

US officials have argued that the price cap could work even if many buyers don’t officially join the coalition, since they could still use the system for leverage in contract negotiations with Moscow.

Another key factor will be at what level the price cap is set. U.S. officials have suggested they intend to fix it slightly above Russia’s marginal cost of production, according to a person familiar with the matter, although the final level would depend in part on the global oil price when it comes into effect.

White House Press Secretary Karine Jean-Pierre on Thursday said the measure, if adopted, would cut President Vladimir Putin’s oil revenue overall by “forcing down the price of Russian oil to help blunt the impact of Putin’s war at the pump.”