G7 Ready To Reveal Its Russian Oil Price Cap Plan

Energy markets on Friday can expect a decision on a G7 plan for capping the price of Russian oil, even if the group’s finance ministers remain uncertain about how such a price-fixing scheme would work. 

According to the Wall Street Journal, citing unnamed sources familiar with the matter, G7 finance ministers will reveal the price cap plan and commit to its implementation during a Friday meeting. 

The plan is likely to include a ban on financing and insurance by G7 nations for Russian oil shipments that are not sold within the confines of the price cap, WSJ reports. 

While the price cap plan is intended to chip away at the Kremlin’s ability to raise more oil revenues for its war coffers to use against Ukraine, it has not been without serious criticism. 

On Wednesday, Treasury Secretary Janet Yellen said she was "optimistic" that the G7 would come to a price-capping agreement. Yellen also met with UK Chancellor of the Exchequer Nadhim Zahawi, who has offered British support for the plan, but also noted that to be more effective, the plan would require more countries to come on board. 

The initial idea was put forward in June, with a deadline for implementation of December.

Previously, a G7 member had said the price cap on Russian oil would be set at a point above the cost of production, according to AFP. This is meant to ensure that Moscow would not be tempted to reject sales. As noted by Deputy Treasury Secretary Wally Adeyemo in an interview with WSJ, the point is to “create a permission structure that allows Russian oil to flow but reduces their revenues”.

While Russian crude is selling at a $20/barrel discount now, it has not worked to stymie Moscow’s oil revenues as the West had hoped it would.

Russian oil output continues to exceed expectations, with data from the Institute of International Finance (IIF) showing Russian oil exports at their highest level ever for the month of August, in part because of Greek-owned oil tankers that have shifted their capacity to take on Russian oil. 

By Charles Kennedy for Oilprice.com

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