On Monday, a price cap imposed by the Group of Seven (G7 ) on Russian oil that is transported by sea went into effect. This comes as the West is attempting to limit Moscow’s ability to finance its war in Ukraine; however, Russia has stated that it will not comply with the measure even if it requires it to reduce production.
The price ceiling will be imposed by the Group of Seven (G7), the European Union (EU), and Australia. This comes on top of the EU’s ban on imports of Russian oil by sea, as well as equivalent promises by the United States, Canada, Japan, and Britain.
Only on the condition that the cargo is purchased at or below the price limit is it permitted for Russian oil to be carried to third-party countries utilising tankers from the G7 and EU, as well as insurance firms and financial institutions.
The limit might make it difficult for Moscow to sell its oil at a higher price since the majority of the world’s major shipping and insurance corporations are headquartered in countries that are members of the G7.
Even if it had to reduce output, Russia, which is the world’s second-largest oil exporter, has said that it would not accept the quota and will not sell oil that is subject to it. This announcement was made on Sunday.
Since Soviet geologists discovered oil and gas in the wetlands of Siberia in the decades after World War Two, exporting oil and gas to Europe has been one of the primary sources of revenue for Russia in terms of generating foreign money.
Reuters was informed by a source who requested anonymity due to the delicacy of the matter that a decree was being written to restrict Russian corporations and dealers from working with nations and companies that were led by the cap.
A edict of this kind would, in effect, prohibit the export of oil and other goods derived from petroleum to nations and businesses that apply it.
The price cap has been set at $60 per barrel, which is not too far below the level of $67 where it closed on Friday. Despite this, the EU and the G7 countries anticipate that Russia will still have an incentive to continue selling oil at this price, despite the fact that it will result in smaller profits.
The EU and the G7 are going to conduct a review of the cap’s level every two months, with the first of these reviews taking place in the middle of January.
The European Commission said in a statement that “this assessment should take into consideration… the efficacy of the measure, its execution, international adherence and alignment, the possible impact on coalition members and partners, and the changes in the market.”
The limit on crude will be followed by a similar restriction affecting Russian petroleum products that will come into action on February 5. The size of that limit, however, has not yet been established and will not be known until then.