As clock ticks on G7’s Russia oil price cap, big questions remain

GBNEWS24DESK//

Just a month before the Group of Seven rich countries plan to cap the price of Russian oil, officials are racing to finalise details, leaving traders, shippers and insurers with questions about the price level and how it will work.

Officials from the United States and its G7 allies plan to cap prices of sea-borne oil shipments effective December 5, with a second cap on oil products kicking on February 5.

The unprecedented price cap aims to block Russia from profiting from high oil after its February 24 invasion of Ukraine while ensuring that most of Russia’s oil continues flowing to global energy markets.

India and China have been snapping up heavily discounted oil from Russia, and G7 officials hope they will use the cap to negotiate lower prices with Moscow.

Russian President Vladimir Putin has said he will stop exporting oil to countries that enforce the cap, and even if he does not, his threat could help support oil prices.

Here are the known and unknowns so far:

WHO’S IN THE PRICE CAP COALITION?

The G7 wealthy nations, the United States, Japan, Germany, Britain, France, Italy and Canada, are hammering out the plan with the EU and Australia.

Yellen last month said G7 members were not looking to broaden the coalition since none of the countries outside it were major suppliers of insurance or oil-related financial services.

Britain said Thursday it could ban countries from using its services to transport Russian oil purchased for a price exceeding the cap.

US Treasury Assistant Secretary for Economic Policy Ben Harris said on Sept. 9 that if China negotiates a separate 30 per cent-40 per cent discount on Russian oil because of the price cap “we consider that a win.”

It will likely be weeks before the price level of the caps will be decided, government officials and analysts said.

One person familiar with the process said the cap will be determined in line with the historical average of $63-$64 a barrel, suggesting a natural upper limit.

Currently, Russian crude is priced at a discount to the international Brent benchmark and the G7 wants that discount as steep as possible to keep down Russian oil revenue. Still, requiring too wide a spread could have the unintended consequence of squeezing global supplies because Russia is the world’s second largest crude exporter, after Saudi Arabia. This could raise fuel prices for Western consumers.

Hoping to prevent this, coalition officials have agreed to set a fixed price when they finalise a price cap on Russian oil later this month, rather than adopting a floating rate, sources said on Thursday.