The summit of the Group of Seven industrialized countries ended yesterday, Tuesday, June 28, by agreeing to consider setting a ceiling for the price of Russian oil as part of its efforts to pressure Russia and its retreat from the war in Ukraine.
Despite the difficulty of achieving this, the Group of Seven countries believes that imposing a ban on the transport and sale of Russian crude at a specific price will strengthen the global economy, which is suffering from high rates of inflation in food and energy prices.
The decision is expected to increase Western pressure on Russia, as German Chancellor Olaf Scholz insisted on continuing sanctions until Russian President Vladimir Putin accepts his failure in Ukraine.
During the closing conference of the summit, Schulz said that Putin’s admission of the failure of his scheme in Ukraine is the only way out.
However, Russian government data show that the cost of Russian Urals crude has increased compared to Brent crude, according to what was monitored by the specialized energy platform.
Russian Oil Price
The idea is to link financial services, insurance, and oil shipments to a certain price, and the transporter or importer can only obtain it when the price specified for Russian oil is adhered to.
The leaders of the Group of Seven called on all countries that agreed to this view to consider joining them.
The group believes that capping the price of Russian oil will prevent Moscow from benefiting from the war in Ukraine, which has led to a sharp rise in energy prices, and thus impeded Western efforts to limit Russian oil and gas imports.
You also see that the idea will deal with two problems, it will restore control of energy prices to some extent, and calm consumer reactions related to inflation.
At the same time, it will limit the flow of Western money to Russia and the financing of the war in Ukraine, according to the specialized energy platform.
The International Energy Agency said in its June report that higher crude oil and fuel prices contributed to the rise in Russian revenues in May, despite a drop in exports due to sanctions.
In addition, the Group of Seven is looking into the possibility of setting a ceiling on the price of gas, a move that Italy specifically adopted, while France called for setting the prices of all energy sales, according to statements by G7 officials.
At the same time, experts warn that the plan may backfire.
PVM brokerage expert Tamas Varga said that Putin may decide to reduce energy exports in response, which could inflame prices, and some countries, such as China, could find alternative solutions.
Meanwhile, the Kremlin indicated on Tuesday, June 28, that Russian gas company Gazprom may seek to change delivery contracts if Western countries implement price caps.
Russian President Vladimir Putin has previously stated that Western countries suffer more than Russia from economic sanctions.
The sharp rise in the prices of Russian commodity exports increased revenues, which contributed to Moscow bypassing sanctions.
Russian government data revealed that the average price of Russian Urals crude reached $87.49 a barrel between mid-May and mid-June, jumping nearly 20% compared to the same period a month ago, according to Bloomberg.
The data shows that the Urals still cost less than Brent crude, but the gap has narrowed sharply, as strong demand in Asia undermines efforts by Western powers to limit Russian revenues.
British Prime Minister Boris Johnson said the group was trying to find solutions to allow Ukraine to export grain.
At the same time, G7 leaders pledged to create an international climate club to promote cooperation on climate change, and emphasized decarbonization of industrial sectors.
However, the leaders watered down their previous commitments to end public funding for new fossil fuel projects and move towards carbon neutrality.
Some are concerned about the impact of rising food prices domestically, and have argued that Western sanctions are to blame for food shortages, not Russia’s invasion of Ukraine, one of the world’s largest grain producers.