G-7 to set $60 per barrel oil price cap to hit Russia's war chest

Kyodo News

Posted at Dec 03 2022 04:51 PM | Updated as of Dec 03 2022 05:08 PM

A view of the Gazpromneft MNPZ Moscow Petroleum Refinery JSC in Moscow, Russia, on October 27, 2022. US officials reworks plan for Russia oil-price cap, following skepticism by investors and growing risk in financial markets. Maxim Shipenkov, EPA-EFE/file
A view of the Gazpromneft MNPZ Moscow Petroleum Refinery JSC in Moscow, Russia, on October 27, 2022. US officials reworks plan for Russia oil-price cap, following skepticism by investors and growing risk in financial markets. Maxim Shipenkov, EPA-EFE/file

The Group of Seven nations, the European Union and Australia plan to cap the price of Russian oil at $60 per barrel, the U.S. government said Friday, just days ahead of the rollout of the new mechanism intended to add pressure on Moscow over its war in Ukraine.

The price cap on seaborne Russian oil, to take effect on Monday, will help restrict the Kremlin's primary source of revenue for the war, while addressing global supply disruptions by encouraging the flow of discounted Russian oil into global markets, U.S. Treasury Secretary Janet Yellen said in a statement.

The announcement came after the 27-member EU agreed on the $60 cap. But questions remain as to whether the price cap level will be low enough to deliver a major blow to Russia.

The United States expressed support for the figure, with White House national security spokesman John Kirby asserting that Russia could see "a significant drop" in oil sales, having at one point charged $100 per barrel.

Brent crude oil, the international benchmark, has been trading at around $85 recently. But Russia's flagship crude has reportedly been trading below $60 recently.

The level of the price cap could be adjusted later depending on Russia's reaction and other factors, Kirby said.

A plan to cap Russian oil prices was agreed earlier this year by the G-7, which consists of Britain, Canada, France, Germany, Italy, Japan and the United States, plus the EU.

The recent focus has been on EU discussions about the actual level of the price cap, with Poland reportedly having held off on approving the proposed $60 per barrel deal to examine an adjustment mechanism to maintain the ceiling below market prices.

An EU source said the mechanism as included in the deal is expected to keep the price cap at least 5 percent below the market level.

==Kyodo