EU, G7 slap price cap on Russian oil
The EU and other G7 countries introduced a price cap on seaborne Russia oil exports on December 5, with Moscow responding with a threat to slash production and potential retaliatory measures.
The cap has been set at $60/barrel, which is roughly the price that Russian oil is currently trading at, at a steep discount compared with global benchmarks as a result of sanctions and Western buyers rejecting the supplies. Shipping and insurance companies, many of the largest of which are based in EU and G7 nations, will be prohibited from dealing with Russian oil if the cap is ignored.
The introduction of the cap coincides with the start of the EU's embargo of seaborne Russian oil supplies. Russian oil deliveries will continue to some member states in central Europe, however, if they have no alternatives.
EU authorities have stressed that the current cap level "is not set in stone," and could be lowered if all agreeing parties reach a consensus. While the cap came into force on December 5, there will be a 45-day wind-down period to exclude seaborne Russian oil purchased above the cap that has been loaded onto a vessel already. A price cap will also be introduced to Russian refined petroleum product supplies on February 5, although the level is yet to be decided. This is the same date that the EU's embargo will be extended to those products.
Russia has responded saying it will not sell oil to any countries that adhere to the cap, and will also ban its own producers from participating.
Russia “will only sell oil and oil products to those countries which will work with us on market conditions, even if we have to somewhat cut production,” Russian deputy prime minister Alexander Novak was quoted as saying by the TASS news agency. “We are not going to use instruments linked with the price cap. We are now looking at mechanisms to ban the use of the price cap instrument.”
The minister added that the price cap violated World Trade Organisation (WTO) rules, and would undermine investment in energy supply, exacerbating the global energy crisis. He also hinted that Moscow might consider retaliatory action. The price cap could in the future "be applied not only to oil but to other products on the market, and not only to Russia but to other countries as well."
Moscow demonstrated its willingness to slash energy exports in retaliation to Western sanctions when it drastically reduced gas supply to the EU in the months after it launched its invasion of Ukraine.