G7 Implements Oil Price Cap; Russia Must Sell at Market Prices

The Group of Seven price cap on Russian seaborne oil went into effect on Monday, as the West attempts to limit Moscow's ability to finance its battle in Ukraine. However, Russia has said that it will not comply with the policy, even if it means reducing production.

The price cap, which will be applied by the G7, the EU, and Australia, is in addition to the EU's prohibition on imports of Russian crude by sea and similar agreements by the United States, Canada, Japan, and the United Kingdom.

It permits the transfer of Russian oil to third parties via G7 and EU tankers, insurance companies, and financial institutions, but only if the cargo is purchased at or below the price cap.

Given that the world's biggest transportation and insurance firms are situated in G7 countries, the cap could make it difficult for Moscow to sell its oil at a higher price.

Russia, the world's second-largest oil exporter, stated on Sunday that it would not accept the restriction and would not sell oil subject to it, even if it meant reducing production.

Since Soviet geologists discovered oil and gas in Siberian wetlands in the decades following World War II, oil and gas exports to Europe have been one of Russia's key sources of foreign currency earnings.

Due to the sensitivity of the issue, a person who requested anonymity told Reuters that a regulation was being developed to prohibit Russian businesses and dealers from cooperating with nations and businesses covered by the cap.

A edict of this type would essentially outlaw the export of oil and petroleum products to nations and businesses that use it.

With the price ceiling set at $60 per barrel, which is not too far below Friday's closing price of $67, the EU and G7 countries predict that Russia will continue to have a motivation to sell oil at this price, albeit for decreased profits.

Every two months, the EU and G7 will review the level of the cap, with the first review occurring in mid-January.

The European Commission noted in a statement that this evaluation should take into account "the efficacy of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments."

The crude oil cap will be followed on February 5 by a similar step affecting Russian petroleum products, the number of which has not yet been determined.