The G7 finance chiefs agree on a ceiling for Russian oil prices, but the level has not yet been determined

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(Reuters) – The finance ministers of the Group of Seven major industrialized nations agreed on Friday to impose a ceiling on Russian oil prices with the aim of reducing revenue from Moscow’s war in Ukraine while avoiding price hikes, but Russia said it would halt oil sales to countries that impose it.

Ministers of the wealthy democracies in the Group of Seven confirmed their commitment to the plan after a virtual meeting. But they said that key details, including the price level per barrel of the price cap, would be determined later “based on a set of technical inputs” that would be agreed upon by the coalition of countries implementing it.

“Today we confirm our common political intention to finalize and implement a comprehensive ban on services that enable the maritime transport of crude oil of Russian origin and petroleum products worldwide,” the G7 ministers said.

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The provision of Western-dominated shipping services, including insurance and financing, will only be allowed if Russian oil shipments are purchased at or below the price level “set by the broad coalition of countries committed to the price ceiling and its enforcement.”

A senior US Treasury official told reporters that the alliance would set a specific dollar price limit for Russian crude and two more for petroleum products – not cuts to global market prices – and the price level would be reconsidered as needed.

“This cap on Russian oil export prices is designed to reduce Putin’s revenue and shut down an important source of financing for the war of aggression,” said German Finance Minister Christian Lindner, the current G7 finance chief. “At the same time, we want to curb the rise in global energy prices. This will reduce inflation globally.”

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cut oil

The Kremlin responded to the G7 statement by saying that it would stop selling oil to countries that apply the price ceiling, saying that this 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 in line with the ceiling, because India, China and other countries outside the alliance would still want to buy oil as cheaply as possible and alternative insurance would be much more expensive. .

A view shows the Kuzmino crude oil terminal on the shore of Nakhodka Bay near the coastal city of Nakhodka, Russia on August 12, 2022. REUTERS/Tatiana Mill

“We have received positive signals from other countries, but there are no firm commitments yet,” a senior G7 source said of efforts to recruit other countries into the coalition. “We wanted to send a signal of unity towards Russia as well as with countries like China.”

The G7 announcement had little impact on benchmark crude prices, which rose in anticipation of OPEC+ discussions on production cuts on Monday amid weak demand.

The ministers said they would work to finalize the details, through their own domestic procedures, with a view to aligning them with the start of EU sanctions that will ban Russian oil imports from the bloc from December.

The G7 consists of Britain, Canada, France, Germany, Italy, Japan and the United States.

Imposing the cap will depend heavily on the refusal of London-brokered freight insurance, which covers about 95% of the world’s tanker fleet, and the financing of shipments over-priced. But analysts say alternatives can be found to go around the ceiling and market forces may render it ineffective

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The International Energy Agency said last month that despite the decline in Russia’s oil exports, its oil export revenue in June increased by $700 million compared to May due to higher prices due to its war in Ukraine.

The statement by G7 finance ministers follows a decision by their leaders in June to explore the price cap, a move Moscow says it will not comply with and that could thwart it by shipping oil to countries that do not adhere to the price cap. Read more

Pricing Concerns

The US Treasury has raised concerns that the EU embargo could lead to a scramble for alternative supplies, sending global crude prices as high as $140 a barrel, and has been promoting a price ceiling since May as a way to keep Russian crude flowing.

Russian oil prices have risen in anticipation of the EU ban, with Urals crude trading at a discount of $18 to $25 a barrel to benchmark Brent, down from $30 to $40 earlier this year. Read more

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Additional reporting by Jan Stropchowski, Matthias Williams, Steve Shearer, William James, Lee Thomas, Timothy Gardner, Daphne Psalidakis and Rami Ayoub; Editing by Raju Gopalakrishnan and Chizu Nomiyama

Our criteria: Thomson Reuters Trust Principles.

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