The world’s seven major industrialized economies have proposed a price restriction on Russian oil in order to further constrain the Kremlin’s capacity to fund its offensive in Ukraine and to safeguard consumers from rising energy prices.
However, the G-7′s pursuit of a price ceiling on Russian oil is fraught with difficulties, with energy specialists doubtful of the proposal′s credibility.
The Kremlin, for its part, has cautioned that any attempt to put a price restriction on Russian oil will create more harm than good.
The United States appears to be the most vocal proponent of a Russian oil price ceiling.
Back in May, US Treasury Secretary Janet Yellen described the proposal to her European counterparts, saying it would act as a levy or quota on Russian oil and help Europe in the interim until a full embargo is imposed.
After several weeks of difficult negotiations, the EU agreed in late May to impose a phased embargo on Russian oil until the end of 2022.
The EU used to get roughly 25 per cent of its oil imports from Russia, and it was one of the Kremlin’s most important buyers. Stopping these oil purchases is an attempt to harm Russia’s economy following the unjustified invasion of Ukraine, but it is difficult to do so quickly considering how strongly dependent several EU countries are on Russian fossil fuels.
Over the weekend of June 25 and 26, US President Joe Biden proposed an oil price cap to the rest of the G-7 leaders, and his counterparts agreed to look into how to implement it. The G-7 consists of the United States, Canada, France, Germany, Italy, the United Kingdom, and Japan.
German Chancellor Olaf Scholz said the plan was ambitious and would require “a lot of work” before becoming a reality.
“We share the G7 countries’ concerns about the burden of energy price increases and market instability, and how these aggravate inequalities nationally and internationally. In this context, as tasked by the European Leaders, the Commission will continue our work on ways to curb rising energy prices, including assessing the feasibility of introducing temporary import price caps where appropriate,” the same spokesperson said, adding the discussions are treated as “a matter of urgency,” a spokesperson for the European Commission, the executive arm of the EU, said in an email to the media on Friday.
Energy specialists have questioned how the G-7 can put a price restriction on Russian oil, saying that if significant users are not included, the idea could backfire, and time may be running short to make it effective.
“I’m one of those scratching my head,” Neil Atkinson, an independent oil analyst, said on Thursday.
“Something like this could only work if you get all of the key producers and crucially all of the key consumers working together and then finding some way of enforcing whatever plan you come up with,” he added.
“And the reality is that the biggest consumers of Russian oil, or amongst the biggest consumers of Russian oil, are China and India.”
According to Atkinson, China and India have “benefited greatly” from inexpensive Russian crude. Russian oil has been selling at a steep discount of $30 or more to international benchmark Brent crude futures around $110 per barrel — and China and India are buying it up.
Atkinson also emphasised a lack of unity in response to Russia’s invasion of Ukraine, citing China and India’s failure to clearly denounce the Kremlin.
“In any event, the Russians won’t just sit there and do nothing. They can play games with supplies of oil and indeed gas … they can mess with the G-7′s head in some respect so I think this plan is really a non-starter,” Atkinson said.
(Adapted from CNBC.com)