G7 agrees to a ceiling on Russian oil prices to reduce financing for Putin’s conflict in Ukraine, but diplomats worry India and China might thwart the effort.
Ministers from the G7 reaffirmed their support for the idea during a virtual meeting.
However, they said that the per-barrel price ceiling will be decided later “based on a variety of technical inputs” to be agreed upon by the coalition.
There are worries that the measure would not be successful without India and China.
Since Putin’s invasion, both have dramatically boosted their imports of Russian oil.
And as a warning to the G7, the Kremlin warned on Friday that it will cease exporting oil to countries who set price limitations on Russia’s energy resources.
Friday, the G7 decided to place a restriction on the price of Russian crude oil in order to reduce financing for Putin’s conflict in Ukraine while preventing price surges.
Nonetheless, some officials are concerned that the quota might fail without the support of key importers including as China and India, whose imports of Russian petroleum have soared since Vladimir Putin’s invasion.
In a warning to the G7 nations, the Kremlin warned earlier on Friday that it will cease supplying oil to nations who set price ceilings on Russia’s energy resources, claiming that such a move would significantly destabilize the global oil market.
Friday, the G7 decided to place a restriction on the price of Russian crude oil in order to reduce financing for Putin’s conflict in Ukraine while preventing price surges. Pictured: The Gazprom Neft-operated Alexander Zhagrin oilfield is shown on August 30, 2022.
After a virtual conference, the ministers from the club of affluent industrial democracies reaffirmed their support to the initiative.
However, they said that the per-barrel price ceiling will be decided later “based on a variety of technical inputs” that would be agreed upon by the coalition of nations implementing it.
The G7 ministers said, “Today we reaffirm our unified political determination to finalize and enforce a worldwide ban on services that facilitate the marine movement of crude oil and petroleum products originating in Russia.”
The supply of marine transportation services, including as insurance and financing, would only be permitted if Russian oil cargoes are acquired at or below the price level “set by the wide coalition of nations adhering to and executing the price limit.”
The ministers said that they will strive to complete the specifics via their respective domestic procedures in an effort to synchronize it with the commencement of European Union sanctions that would prohibit Russian oil shipments into the union beginning in December.
The Group of Seven comprises of the United States, Canada, Britain, France, Germany, and Italy.
The ministers said that they would seek a bigger coalition of oil-importing nations to buy Russian crude oil and petroleum products exclusively at or below the price ceiling, and will solicit their feedback on the idea.
Nevertheless, several G7 officials voiced worry that the price ceiling would fail without the involvement of large importers like China and India.
Since Moscow’s incursion in February, these nations have significantly boosted their crude oil imports from Russia. Others have said, however, that China and India have showed interest in purchasing Russian oil at prices even lower than the ceiling.
Some authorities are concerned that the limit might fail without the support of large importers including as China and India, who have dramatically boosted their imports of Russian petroleum since the February invasion. In 2016, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping were photographed together.
The Kremlin issued a warning to the G7 nations on Friday morning, stating that it will cease supplying oil to countries who set price ceilings on Russia’s energy resources, claiming that such a move would significantly destabilize the global oil market. A Russian oil rig is shown.
Cargoes priced beyond the threshold would be denied London-brokered shipping insurance, which covers around 95 percent of the world’s tanker fleet, and financing.
However, according to researchers, ways exist to avoid the restriction, and market forces might make it ineffectual.
The International Energy Agency said last month that despite a decline in oil export volumes, Russia’s oil export revenues surged by $700 million in June compared to May as a result of the conflict in Ukraine.
The G7 finance ministers’ announcement follows their leaders’ June resolution to investigate a price limit, a step Moscow says it will not comply by and can prevent by sending oil to countries that do not adhere to the ceiling.
The U.S. Treasury has expressed worry that the EU ban may trigger a rush for alternative suppliers, resulting in a spike in global petroleum prices to as high as $140 per barrel, and it has been advocating for the price ceiling since May as a means to keep Russian crude flowing.
Urals crude is selling at a discount of $18 to $25 per barrel to Brent crude, compared to a discount of $30 to $40 per barrel earlier in the year.
The Group of Seven comprises of the United States, Canada, Britain, France, Germany, and Italy. Pictured: The G7 leaders are pictured meeting in June of this year.
The EU put a partial embargo on Russian oil imports earlier this year, which, according to Brussels, would limit 90% of Russia’s exports to the 27-member union when completely implemented.
Ursula von der Leyen, the head of the European Commission, said on Friday that it was time for the EU to examine a similar price ceiling on Russian gas imports.
Also on Friday, the Kremlin said that Russia will cease exporting oil to nations that put price limitations on Russia’s energy resources. According to the Kremlin, such price caps would significantly destabilize the global oil market.
Companies that set a price ceiling will not get Russian oil, Kremlin spokesperson Dmitry Peskov told reporters in a conference call, echoing remarks made by Deputy Prime Minister Alexander Novak on Thursday.
Peskov stated, “We will not cooperate with them on non-market principles.”
Peskov said that European people paid the price for these measures, which were taken in reaction to Russia’s military assault in Ukraine.
The energy markets are in a frenzy. This is primarily the case in Europe, where anti-Russian sanctions have caused Europe to purchase liquefied natural gas (LNG) from the United States for a disproportionately high price. U.S. firms are growing wealthy and European taxpayers are going poorer,’ Peskov added.
After a virtual conference on Friday, the ministers from the club of affluent industrial democracies reaffirmed their adherence to the idea. Pictured: Russia’s Alexander Zhagrin oilfield, operated by Gazprom
Peskov said that Russia was analyzing how a price cap on its oil exports may damage its economy.
Such a move will significantly destabilize the oil markets, it can be asserted with certainty.
According to the International Energy Agency, before Russia pushed tens of thousands of soldiers into Ukraine in February, Europe was the destination for about half of Russia’s oil and petroleum product exports.
In 2021, the union imported 2,2 million barrels per day (bpd) of oil, 1.2 million barrels per day (bpd) of refined goods, and 0.5 million barrels per day (bpd) of diesel, with Germany, Poland, and the Netherlands being the top importers.
Russian banks lost $25 billion in the first half of the year due to sanctions imposed over the conflict in Ukraine. This was the first time in seven years that Russian banks were in the red.
Dmitry Tulin, First Deputy Chairman of the Central Bank, announced the profitability of the banking industry on Friday, the first time since February that Russia has done so.
Since Vladimir Putin’s troops invaded Ukraine, the Kremlin has regarded financial records as carefully guarded state secrets in order to conceal the actual extent of the economic harm inflicted by Western sanctions.
And despite the fact that Russia was able to implement emergency capital restrictions to minimize the damage to the rouble, many claim that this has just covered up the problem.
Against the background of the ongoing invasion, Tulin said that the country’s banks had lost a total of 24.86 billion dollars during the first six months of 2022.
As a result of Ukraine-related sanctions, Russian banks incurred a loss of $25 billion in the first half of the year for the first time in seven years.
Dmitry Tulin, First Deputy Chairman of the Central Bank, revealed the data on Friday – the first time since February that Russia has done so.
In an interview with the RBC business newspaper, he said that around two-thirds of banks’ losses stem from foreign currency transactions.
There is a “more than 50 percent possibility” that annual losses would surpass the 1.5 trillion rouble number from the previous administration, he said.
According to the chairman, losses were concentrated among Russia’s top banks.
Loss-making institutions had a total loss of 1.9 trillion roubles ($31.60 billion), while profitable lenders earned a total of 400 billion roubles ($6.65 billion), for a net loss of 1.5 trillion roubles.
The rouble spent much of August close to 60 dollars per rouble.
Since it reached a record low of 121.53 per dollar in Moscow trading in March, just after Russia pushed tens of thousands of soldiers into Ukraine, volatility has decreased.
In June, it rose to its highest level in seven years, 50.01 per dollar.
The rouble has been the world’s best-performing currency so far this year, thanks to emergency capital curbs implemented by the central bank to stem a huge sell-off. This prevented the economic collapse that many had expected.
Late last month, Russia defaulted on its foreign debt for the first time in more than a century, as a result of sanctions imposed by the West in response to Russia’s deployment of soldiers into Ukraine in late February.
In May, EU leaders decided to impose an embargo on the vast majority of Russian oil imports by the end of the year, while more than 1,000 western enterprises left the country. Several of Russia’s top oligarchs have also been put under sanctions.
In an effort to stabilize the currency, the Kremlin reacted to the sanctions by increasing interest rates and requiring ‘unfriendly’ nations to pay for Russian gas in roubles.