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27 Jul, 2022 15:30

Timeframe for proposed Russian oil price cap revealed

Western countries plan to introduce the mechanism in December, Reuters reports
Timeframe for proposed Russian oil price cap revealed

A price cap mechanism intended to limit Moscow’s revenue from oil exports could be in place by early December, Reuters reported on Wednesday, citing a senior official within the Group of Seven richest Western economies.

December 5 has been named as the date when European Union sanctions banning seaborne imports of Russian crude will come into force, Reuters explains.

“The goal here is to align with the timing that the EU has already put in place. We want to make sure that the price cap mechanism goes into effect at the same time,” an unnamed official told the agency.

The G7, which includes the United States, Canada, Japan, Germany, France, Italy and Britain, wants to set a price cap on Russian crude to cut Moscow’s income flow and force it to abandon its military operation in Ukraine. They have also been trying to lure China and India, major buyers of Russian crude, to join the deal.

The G7 wants the price of Russian crude to be set at a level above production costs but significantly lower than current market prices, Reuters added.

Moscow said last week it would stop supplying countries that join the limiting mechanism as a price ceiling would make oil more expensive and hurt Russian producers.

Central Bank of Russia Governor Elvira Nabiullina warned that instead of complying with the cap, Russia would redirect its supply to countries that do not impose such a price limit.

Any scheme to impose a price cap on Russian oil will be quickly undermined by market forces, even if the US and EU manage to convince top Asian importers to take part, Jorge Montepeque, one of the architects of benchmark global oil prices, told Reuters earlier this month.

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