The G7 price cap on Russian seaborne oil came into force yesterday as the West tries to limit Moscow’s ability to finance its war in Ukraine, but Russia has said it would not abide by the measure even if it has to cut production.
The price cap, to be enforced by the G7 nations, the EU and Australia, comes on top of the EU’s embargo on imports of Russian crude oil by sea and similar pledges by the US, Canada, Japan and the UK.
It allows Russian oil to be shipped to third-party nations using G7 and EU tankers, insurance companies and credit institutions, only if the cargo is bought at or below the price cap.
As the world’s key shipping and insurance firms are based in G7 nations, the cap could make it difficult for Moscow to sell its oil for a higher price.
Russia, which is the world’s second-largest oil exporter, on Sunday said that it would not accept the cap and would not sell oil that is subject to it, even if it has to cut production.
Selling oil and gas to Europe has been one of the main sources of Russian foreign currency earnings since Soviet geologists found oil and gas in the swamps of Siberia in the decades after World War II.
A source who asked not to be identified due to the sensitivity of the situation said that a decree was being prepared to prohibit Russian companies and traders from interacting with nations and companies guided by the cap.
In essence, such a decree would ban the export of oil and petroleum products to nations and companies that apply it.
Still, with the price cap set at US$60 per barrel, not much below the US$67 level where it closed on Friday, the EU and G7 expect Russia to still have an incentive to continue selling oil at that price, while accepting smaller profits.
The Chinese Ministry of Foreign Affairs yesterday said that Beijing would continue its energy cooperation with Russia on the basis of respect and mutual benefit, following the EU’s agreement of the price cap, Russia’s RIA news agency reported.
The level of the cap is to be reviewed by the EU and G7 every two months, with the first such review in the middle of next month.
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