The United States on Friday welcomed the G7, European Union and Australia’s US$60 price cap on Russian oil and said the move will ‘particularly benefit low- and medium-income countries (that have) borne the brunt of elevated energy and food prices’ caused by Russia’s war on Ukraine.
US treasury secretary Janet L. Yellen said the move will ‘further constrain (Russia president Vladimir) Putin’s finances and limit revenues to fund his brutal invasion’. The G7, European Union, and Australia have set a cap on seaborne Russian oil… achieve our goal of restricting Putin’s primary source of revenue for his illegal war, while preserving stability of global energy supplies.”
“Today’s announcement is the culmination of months of effort by our coalition, and I commend the hard work of our partners in achieving this outcome.”
The US treasury secretary also said the cap will encourage flow of discounted Russian oil and protect consumers and businesses from supply disruptions that have stemmed from the war in Ukraine and affected economies worldwide.
“Whether these countries purchase energy inside or outside of the cap, the cap will enable them to bargain for steeper discounts on Russian oil,” she said.
On Friday the G7 (in which the EU is an additional member) and Australia said they had agreed on a per barrel price cap for Russian seaborne crude oil.
This was after EU members overcame resistance from holdout nation Poland and hammered out a political agreement.
The cap is expected to come into effect from December 5.
Poland had initially resisted the cap and argued for measures to ensure the cap is below market price; the revised deal says it will be at least five per cent below.
Further details on the deal will be released Sunday, news agency Reuters said.
How does the cap work?
On December 5 (or whenever the cap comes into effect) shipping and insurance companies based in the US or other G7 nations (and Australia) will not be allowed to handle Russian crude oil sold above US$60 per barrel.
There is grandfather clause that says vessels loaded before December 5 and reaching their destinations before January 19 will be allowed to operate.
What the EU chief said on the price cap
European Commission president Ursula von der Leyen said the cap will significantly reduce Russia’s revenues. “It will help us stabilise global energy prices (and) benefit emerging economies around the world,” she tweeted.
She also said the will be ‘adjustable’ to react to market developments. The earlier proposal had a cap of $65-$70 per barrel with no adjustment mechanism.
Will India’s imports be hit?
India has taken advantage of cheaper Russian oil and Moscow is now the country’s second-biggest supplier, replacing Saudi Arabia.
However, asked if this cap could affect that supply line, senior officials said that is unlikely, since Indian refiners can lift any quantity of Russian oil provided they do not use shipping, insurance and other services of European firms.
One official said Indian refiners may likely be getting oil ‘well below’ the cap.
India is the world’s third biggest oil consumer and importer.