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Sept 2 (Reuters) – Group of Seven finance ministers agreed on Friday to impose a price cap on Russian oil in a bid to reduce revenue from Moscow’s war in Ukraine and prevent price spikes, but Russia he said he would stop oil sales to countries that tax it.
Ministers from the G7 rich democracies confirmed their commitment to the plan after a virtual meeting. They said, however, that key details, including the per-barrel level of the price cap, would be determined later “based on a series of technical inputs” to be agreed by the coalition of countries implementing it.
“Today we confirm our joint political intention to finalize and implement a comprehensive ban on services enabling the maritime transport of crude oil and petroleum products of Russian origin globally,” the G7 ministers said.
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The provision of Western-dominated shipping services, including insurance and finance, would only be allowed if Russian oil cargoes are bought at or below the price level “determined by the broad coalition of adhering countries and implement the price cap.”
A senior US Treasury official told reporters that the coalition would set a dollar-specific price cap for Russian crude and two more for oil products, not discounts to global market prices, and that the price level would would revise as necessary.
“This price cap on Russian oil exports is designed to reduce Putin’s income, closing off an important source of financing for the war of aggression,” said German Finance Minister Christian Lindner, the current finance chairman of the G7. “At the same time, we want to slow the rise in global energy prices. This will minimize inflation globally.”
OIL CUTTING
The Kremlin responded to the G7 statement by saying it would stop selling oil to countries implementing the price cap, saying it would destabilize global oil markets.
“We simply will not cooperate with them on non-market principles,” Kremlin spokesman Dmitry Peskov told reporters. [nL8N3091TK]
The Treasury official said Russia would have no choice but to sell oil at discounted prices under the cap because India, China and other countries outside the coalition will still want to buy oil as cheaply as possible and insurance alternatives will be considerably more expensive. .
A view shows the Kozmino crude oil terminal on the shore of Nakhodka Bay near the port city of Nakhodka, Russia, August 12, 2022. REUTERS/Tatiana Meel
“We have received positive signals from other countries, but there is no firm commitment yet,” a senior G7 source said of efforts to recruit other countries to the coalition. “We wanted to send a signal of unity to Russia and also to countries like China.”
The G7 announcement had little effect on benchmark crude prices, which rose in anticipation of an OPEC+ discussion on production cuts on Monday amid weaker demand. read more
Ministers said they would work to finalize the details, through their own internal processes, with a view to aligning it with the start of European Union sanctions that will ban imports of Russian oil into the bloc from december
The G7 is made up of Great Britain, Canada, France, Germany, Italy, Japan and the United States.
Enforcement of the cap would largely depend on denying London-brokered shipping insurance, which covers around 95% of the world’s tanker fleet, and financing cargo priced above the cap. But analysts say alternatives can be found to circumvent the cap and market forces could make it ineffective read more
Despite a drop in Russia’s oil export volumes, its oil export earnings in June rose by $700 million from May due to prices boosted by its war in Ukraine, the agency said Energy International last month.
The statement by G7 finance ministers follows a decision by their leaders in June to explore the cap, a move Moscow says it will not respect and can thwart by sending oil to states that do not obey the price ceiling. Read more
PRICE CONCERN
The US Treasury has expressed concern that the EU embargo could spark a scramble for alternative supplies, pushing global crude prices to $140 a barrel, and has been promoting the price cap since May as a way to keep Russian crude oil flowing.
Russian oil prices have risen in anticipation of the EU embargo, with Urals crude off a $18-25 a barrel discount to benchmark Brent crude, down from a $30-40 discount to beginning of the year Read more
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Additional reporting by Jan Strupczewski, Matthias Williams, Steve Scherer, William James, Leigh Thomas, Timothy Gardner, Daphne Psaledakis, and Rami Ayyub; edited by Raju Gopalakrishnan and Chizu Nomiyama
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