G7 seeks to hurt Russia by capping oil export prices

G7 leaders gathered for a summit in the Bavarian Alps on Sunday are seeking a deal to put a “price cap” on Russian oil as the group works to limit Russia’s ability to fund its four-month war in Ukraine.

The goal will be for a wide range of countries to go beyond G7 set a ceiling on the price paid for Russian oil to limit the Kremlin war machine’s profit from soaring oil prices. It would also mitigate the impact of higher energy prices on Western economies.

The idea is actively promoted by the United States. Although Germany has long had reservations about this, recent comments from German officials suggest that Berlin is approaching the idea.

Charles Michel, President of the European Council, said leaders would discuss capping oil prices in the coming hours, stressing the need for a “clear vision” and an understanding of possible side effects.

Such a deal would require the support of all 27 EU member states, and officials would need to resolve difficult questions about how it would work and comply with US, UK, European and Japanese sanctions regimes.

In May, the EU agreed to a phased ban on offshore shipments of Russian oil, while allowing a temporary exemption for pipeline oil. These measures are expected to cut Russian oil exports to the EU by 90 percent by the end of this year.

G7 leaders meet as aftermath have you been in Ukraine casts a growing shadow over the world economy. The blockade of Ukrainian ports has led to rising food prices, and Russia’s decision to cut gas supplies to Europe threatens an energy crisis.

As inflation soars and central banks react with more aggressive interest rate hikes than markets expected, economists around the world are lowering their growth forecasts and some are even warning of a recession.

The meeting at the luxurious Bavarian resort of Schloss-Ellmau is hosted by German Chancellor Olaf Scholz. He was joined by the leaders of the United States, Great Britain, France, Italy, Japan and Canada. Argentina, South Africa, Senegal, Indonesia and India were invited as partner countries.

G7 leaders announced on Sunday that they would ban Russian gold imports as part of efforts to tighten sanctions against Moscow. “We need to defund the Putin regime,” British Prime Minister Boris Johnson said. “The UK and our allies are doing just that.”

The German official said that regarding Ukraine, the G7 would seek to convey a “message of unity” and “signal support” to Kyiv. Ukrainian President Volodymyr Zelensky will join the summit via video link on Monday.

Johnson on Sunday reaffirmed the need to maintain consensus in the face of Russian aggression in Ukraine, warning that there could be “fatigue” among the “population and politicians.”

Asked if he was concerned about the weakening of support for Ukraine, Johnson replied: “I think there is pressure and concern, we have to be honest about it.”

The idea of ​​capping oil prices came at a time when experts fear sanctions against Russia could backfire. Despite Western restrictions on Russian oil imports, Russia’s revenues from oil exports have not necessarily declined due to the surge in crude oil prices.

Michel said: “We want to make sure the goal is to target Russia and not make our lives harder and harder. We need to make sure that if we make such a decision, there will be a clear vision, a clear common understanding of what is a direct consequence and what can be secondary.

He said the EU was ready to make a decision with its partners, but stressed that he was “cautious and cautious” on the matter.

A senior German official said there were “intense discussions” about how price caps would be implemented and how Western and Japanese sanctions would be dealt with.

“The issues we have to resolve are not trivial, but we are on the right track towards an agreement,” he said.

Under the oil price cap scheme, Europe will limit the availability of transportation and insurance services to transport Russian oil around the world, requiring these services to be available only if the oil importer complies with the price ceiling. A similar restriction on the availability of financial services in the US could give the scheme an additional effect.

Scholz emphasized that this concept will require broad support around the world to be effective.

It would also require the EU to change its ban on insurance against Russian oil supplies, which came with the ban on offshore oil imports, which requires the consent of all 27 EU member states.

The UK will have to join us given that it is home to the Lloyd’s of London insurance market. The EU and UK have already agreed to an insurance ban, but London has yet to finalize its scheme.

At their summit, the G7 leaders will also discuss how to prevent a global “hunger crisis” amid growing food insecurity caused by the war in Ukraine. They will also discuss Germany’s proposal for a “climate club” in which participating countries will coordinate their efforts to decarbonize their economies.

Additional report from Jasmine Cameron-Chileche