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5 Sep, 2022 12:29

Enforcing Russian oil price cap is problematic — Washington Post

The G7 wants to deprive Russia of oil revenue while also keeping supplies flowing
Enforcing Russian oil price cap is problematic — Washington Post

The latest initiative to set a price ceiling for Russian crude announced by the Group of Seven nations last week may encounter significant difficulties, the Washington Post reported on Friday.

The scheme pushed by the G7 (the US, Canada, the UK, Germany, France, Italy, and Japan) is aimed at solving several problems simultaneously. It aims to undercut the revenue Moscow receives from selling crude to the global market, while maintaining energy flows to the West, and also keeping global oil prices in check. 

The plan, which is seen as a top priority of US Treasury Secretary Janet Yellen, includes banning services such as insurance and financing for ships transporting Russian crude above an agreed price level.

Analysts polled by the media are raising concerns that the ban could be easily circumvented if countries outside the G7, such as China and India, were to keep purchasing Russian oil above the capped price before selling it back to world markets at a premium.

“The devil is in the details, and few details appeared today,” Bob McNally, a former energy official in the George W. Bush administration told the Post. “This was a process announcement, moving from exploring a price cap to implementing one.”

According to Simon Johnson, a professor at the Massachusetts Institute of Technology, the price cap plan, which would allow Russia to trade oil at a discount, would be less disruptive to world markets than Europe’s previous idea of severing all imports of Russian oil.

Experts have also warned that Russia could retaliate by slashing shipments of natural gas to Europe more sharply, saying such a scenario would exacerbate the economic crisis already gripping many Western countries.

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