The G7 introduced a ceiling on Russia’s oil prices. What does this mean

G7 leaders want to mobilize all oil -consuming countries against Russia.

One of the outcomes of the G7 meeting was an agreement on the introduction of a price ceiling for Russian oil, which, according to G7 leaders, would reduce the possibilities of financing Russia’s war against Ukraine. A similar initiative is being discussed regarding Russian gas. Athletistic telling details.

“There’s only one way out: Putin’s defeat”

G-7 leaders have temporarily agreed to begin work on the issue of international price caps for Russia’s oil and gas in response to Russia’s military intervention against Ukraine.

In the joint communiqué from the G-7 summit on oil from Russia, it is said to be considering the possibility of imposing a transportation ban if goods are sold above the price ceiling.

The idea is to tie financial services, insurance and oil transportation to a price limit. Thus, if a shipper or importer wants to receive these services, he must agree to the sale of Russian oil at no more than a set maximum price.

To soften the spoken blow to hydrocarbon markets, which have still been able to push oil prices by a few percent, the document’s authors promised consumer countries to consider mechanisms to mitigate the consequences. of restrictions and ensure that the most vulnerable and affected countries retain access to energy markets, including from Russia.

“I support it. It’s a good idea,” French President Emmanuel Macron said on Tuesday at a press conference following the G7 summit (USA, Germany, France, Britain, Canada, Italy and Japan), held in Germany.

He said that there is a technical difficulty in setting limits on the amount of oil from Russia, because oil is brought to many countries not through one pipeline, but in different ways. “For this initiative to work, it is necessary to expand the alliance of consumers as much as possible … who will agree to it, set a price ceiling and achieve its effectiveness,” Macron said.

According to him, based on the political discussions held at the G7 summit, technical work should begin. “Is it possible, after leaving the G7 summit, to press the button and announce that the price ceiling has already been set? No. This is not true, because the technical mechanism does not exist,” the French president said.

The second task, as Macron said, is to do the same with Russian gas. “It’s easier. It’s coming through the gas pipeline. And Russia’s ability to switch to liquefied gas is very weak. I also support it very much,” the French leader said.

Macron said energy consumers are being encouraged to better communicate in order to communicate with one voice to producers “with great responsibility given to our collective dependency.”

The cap on oil prices will increase the current pressure of Western sanctions on Russia, pushed by German Chancellor Olaf Scholz, until Putin accepts defeat in the war against Ukraine.

“There is only one way out: Putin must admit that his plans in Ukraine will not be fulfilled,” Scholz said at the last press conference of the three -day G7 summit.

Italian Prime Minister Mario Draghi also insisted on the highest price for Russia’s energy carriers.

The main problem on the way to the ceiling of oil prices is China and India, which are now actively buying Russian oil at deep discounts, analysts say. However, Reuters wrote, citing sources, that the G7 had conducted “productive and positive” talks with Chinese and Indian authorities to limit prices for Russian oil.

What Experts Say About Russia’s Oil Price Restrictions

Russian suppliers would not be able to do without Western insurers and shipping companies, plan developers believe.

The bulk of all shipments are carried out through Lloyd’s of London platform, secondary insurance to a large extent going through the world’s leading reinsurers from Germany.

Many tankers carrying Russian oil belong to shipping companies from EU countries – Greece, Malta, Belgium.

However, experts are confused. Janis Kluge, an expert at the German Foundation for Science and Politics, said that, first, Russia was already earning less on oil because of sanctions: both export volumes and prices had dropped – for brand of the Urals is less this than before the beginning of large -scale aggression against Ukraine.

“Second, we already have an embargo, and third, there are no special levers of pressure. What if Russia refuses to play by these rules?” Kluge wrote on his Twitter microblog. The price of oil in this case, contrary to the idea of ​​limiting prices, could rise, he said.

According to the expert, the West does not pose any threat to Russia if it refuses to export oil at low prices, and Moscow, in turn, can proactively reduce oil production. “If this is the result of the introduction of a marginal price, then in the short term it will primarily harm the West,” Janis Kluge said.

The German think tank Institute for the World Economy believes that import duties will be more effective.

How do they see the difference between the two measures: Although the price limit threatens to boost global demand for energy, an import duty would mitigate the effects of high energy prices on households and reach Russia’s budget faster than many other sanctions – in the long run. run.

In contrast to the marginal price, the duty would reduce Russia’s demand for oil and thus have the desired effect – a reduction in Russia’s revenue from oil exports.

Sanctions against Russia’s oil are already in effect

The G7 countries have vowed to completely stop buying oil from Russia to reduce its budget revenues. Heads of state want to follow the U.S. example and impose an embargo on Russia’s oil supplies, because “it will hit hard on Putin’s main economic artery and deprive him of the revenues” needed to finance war against Ukraine.

After that, U.S. Treasury Secretary Janet Yellen said the embargo would “have a devastating effect” on Europe. Washington has proposed creating a cartel of Russian oil buyers to control its cost, which would allow European countries not to deny supplies altogether.

In early June, the European Union introduced a new package of sanctions against Russia, which included an oil embargo on oil supplies by sea. The ban was not extended to oil and oil products exported from Russia, but made abroad and not owned by the Russians, as well as fuel supplies through the Druzhba pipeline. The restrictions took effect immediately, but will take full force by the end of the year.

After that, U.S. national security adviser Jake Sullivan said Western countries were discussing the possibility of setting a limit on Russia’s oil purchases. According to him, the negotiations were carried out, among other things, within the framework of the G7 at the level of Sherpas, proxies of the head of the participating country.

Against this background, Bloomberg wrote that oil revenues in Russia’s budget in June had fallen to the smallest since the start of a full-scale war against Ukraine.

“June brought to Russia a new wave of falling commodity revenues. Russia’s oil exports through Baltic Sea ports fell 20 percent in the week ended June 24, adding of “pain” in the federal budget, which is already exploding at the seams due to the growth of the ruble, ” – said in the article of the publication.

Russia’s weekly collection of oil export duties has fallen to $ 123 million, Bloomberg calculates based on data from the Russian Ministry of Finance and tanker traffic statistics.

Compared to April highs, the flow of petrodollars dried up almost twice and became the smallest since the beginning of the full-scale invasion of the Russian army on the territory of Ukraine. In rubles, the budget received less: since the beginning of June, the dollar has fallen by 7.5 rubles, and on Tuesday it again wrote the lowest in seven years – 52.57 rubles.

And even if Russia’s budget remained in excess, for this the government of the aggressor country would have to reduce spending “under the knife” – by 26 percent compared to April, seasonally adjusted, estimates Raiffeisenbank.

Russia’s budget needs oil at $ 100 per barrel to balance revenues with costs, Russian Alfa-Bank estimates. But consumers of the Urals do not agree with such a price tag: in May, the Russian grade was sold at an average of $ 78, while Russian oil importers are trying to take advantage of the weak position in the Russian market.

According to the calculations of the Russian Ministry of Finance, in 2022, oil and gas revenues should provide 40.9 percent of Russia’s budget revenues.

Meanwhile, the US is building ties with Venezuela, a country with large oil reserves locked in the country because of sanctions. Washington has begun to weaken them. The EU has already called for a full -scale return of Venezuela, as well as Iran, which is also under US sanctions, to the global oil market.

As for gas, Europe is harder to deny it, and it is now looking for alternative suppliers and energy sources. However, in this regard, Russia imposes sanctions against itself, cutting off gas to EU countries. Russia already receives less gas in 12 countries. More about this in the material Destabilization of the European Union.

At the same time, Gazprom, unlike Russian oil companies, has no opportunity to immediately redirect goods to Asian markets.

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