G7 nations finalizing Russian oil price cap

The G7 intergovernmental political forum says it is close to finalizing a mechanism through which it will limit the amount of money flowing into Russia while ensuring nations can still access its oil exports.

The bloc — which comprises Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — said the initiative, which Australia has also vowed to participate in, will apply to seaborne shipments of Russian crude oil, and involve Western insurance companies only insuring shipments sold at or below the G7's price cap.

The bloc believes that, by keeping the selling price down, it will deprive the nation of income that could finance Moscow's involvement in the Russia-Ukraine conflict.

Antony Blinken, the US secretary of state, told reporters on Friday: "Russia needs to sell energy to keep the country going, to keep its economy going, and it wants to sell energy to fund the war. This is a good mechanism for making sure energy remains on the market but that the gains Russia gets from it have a ceiling."

The Financial Times newspaper said Russia's oil and gas exports earned the nation $117 billion during the first eight months of 2022, which was around a third of the nation's total budget for the year.

The G7 said, following two days of talks in Germany, it still has some details to iron out before the initiative is activated.

"We will finalize implementation of the price cap on seaborne Russian oil in the coming weeks," the statement said.

The G7 wants the initiative to come into force on or before Dec 5, which is when European Union sanctions against Russian crude oil come into effect.

The cap will only apply to crude oil and not to products refined from it, such as diesel and gasoline. And The Wall Street Journal said it will call for oil shipped under the terms of the initiative that is re-sold to still be pegged below the price cap if it is shipped on by sea, but that nations will be able to buy oil at price cap prices and resell it domestically at market prices, offering an incentive for countries to take part.

The Financial Times said the success of the cap will likely depend on whether China and India support it, because of their large demand dictated by their populations. But the paper said, if they do not sign up to take part, they could still ensure Russia sees less oil revenue by using the price cap as a bargaining chip when purchasing Russian oil.