G7 Takes the Lead: New Price Caps Set on Russian Oil Products
The Group of Seven affluent nations, the European Union, and Australia have established maximum prices for Russian diesel and other petroleum products to ensure steady supply while restricting Moscow’s profits once the EU embargo goes into effect.
Starting on February 5th, the EU’s embargo will follow the previous ban on Russian sea-borne crude that the EU, G7, and Australia established a $60 per barrel cap for crude oil on December 5th.
The goal of the alliance is to penalize Russia for its invasion of Ukraine by reducing its revenue from oil and product exports while avoiding a spike in prices that could result from a cessation of Russian oil flowing into global markets.
As a safeguard from the EU ban, which affects insuring and transporting Russian oil and could disrupt global trade, the price cap mechanisms will permit these services as long as they occur below a specified price.
The coalition announced that they have established price ceilings of $100 per barrel for products such as diesel which trade at a premium to crude and $45 per barrel for items such as naphtha and fuel oil which trade at a discount. These price limits are in line with the proposals made by the European Commission.
The coalition stated that the price caps on petroleum products will be put into effect on the 5th of February or shortly thereafter. Participating countries have indicated that there will be temporary exceptions for products loaded onto a vessel prior to the 5th of February.
The EU ban prohibits EU ships from carrying petroleum products of Russian origin unless the products are procured at or below the price cap agreed upon by the coalition. This also applies to companies that offer technical, brokering or financial support such as insurance for cargoes carrying Russian refined products.
In the event that a vessel sailing under the flag of a third party carries Russian oil above the price cap, EU operators will not be permitted to insure, finance, or service the vessel for 90 days after the cargo has been unloaded.
EU-flagged vessels may face penalties as per national legislation, and the EU is considering imposing a penalty equivalent to 5% of global turnover for companies that violate EU sanctions.
The G7 coalition stated that they will review the crude oil price cap of December 5th in March and that any decisions regarding changes will be based on technical analysis by organizations such as the International Energy Agency and will also consider the impact on Russian oil revenues.