G7 price cap for Russian oil comes into force

G7 price cap for Russian oil comes into force

The price limit of the group of seven on Russian seaborne oil came into force on Monday as the West tries to limit Moscow’s ability to finance its war in Ukraine, but Russia has said it will not abide by the measure. Even if you have to reduce production.

The price cap, which will be applied by the G7, the European Union and Australiaadds to the EU embargo on imports of Russian crude by sea and similar pledges by the United States, Canada, Japan and the United Kingdom.

Allows the shipment of Russian oil to third countries using tankers of the G7 and the EUinsurance companies and credit institutions, only if the shipment is purchased at or below the maximum price.

With the world’s top shipping and insurance companies based in the G7 countries, the cap could make it more difficult for Moscow to sell its oil at a higher price.

Russia, the world’s second-biggest oil exporter, said on Sunday it would not accept the cap and would not sell oil subject to it, even if it had to cut production.

The sale of oil and gas to Europe has been a major source of Russian hard currency since Soviet geologists found oil and gas in the Siberian swamps in the decades after World War II.

A source who asked not to be named due to the sensitivity of the situation told Reuters that a decree was being prepared to ban Russian companies and traders from interacting with countries and companies that abide by the cap.

In essence, said decree would prohibit the export of oil and oil products to the countries and companies that apply it.

Still, with the price cap set at $60 a barrel, not far below the $67 level it closed on Friday, the EU and the G7 countries hope that Russia will still have an incentive to keep selling oil at that price, although accepting lower benefits.

The EU and the G7 will review the level of the cap every two months, with the first review to be in mid-January.

This review should take into account (…) the effectiveness of the measure, its application, international adherence and alignment, the potential impact on coalition members and partners and market developments,” the European Commission said.

The crude price cap will be followed by a similar measure affecting Russian oil products that will take effect on February 5, although the level of that cap has yet to be determined.

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