The most industrialized countries on the planet (G7) announced this Friday, after a videoconference meeting, that they will “urgently” put a ceiling on the price of oil that comes from Russia. They do not specify how much it would be, or when. But the political message is clear: the intention is to stop financing the Russian economy in order to stop the war in Ukraine.
The mechanism seems complex. It will only be allowed to provide transportation services if oil and derivatives are purchased at a price equal to or less than that set by the coalition. “The price limit will be set at a level based on a series of technical data and will be decided by the entire coalition. coalition before its application”, write the seven countries: USA, Germany, Canada, Great Britain, Italy, Japan and France. "The price cap will be specifically designed to reduce Russian revenues and Russia's ability to finance its aggressive war while limiting the impact of the war on global energy prices," the document said.
According to data from the International Energy Agency, between March and July Russia received 94.87 billion euros from its oil and gas exports to the European Union alone, almost twice as much as in previous years.
Russia, for its part, denounces that it is a "completely absurd" measure. This “interference” in the oil market “will only destabilize the oil industry, the oil market. And for this, European and American consumers will be the first to pay," Russian Deputy Prime Minister Alexander Novak threatened. "We will simply not deliver any more oil or oil products to companies or countries that impose such restrictions," he warned.
This is a first sign of what could come: Gazprom has reported that the flow in the NordStream1 gas pipeline to Europe has been completely interrupted and that it will last more than the three days initially announced due to an alleged failure.
"This closure under false pretexts is another confirmation of Russia's unreliability as a supplier and is proof of its cynicism, instead of honoring contracts," Brussels commented.
However, apart from possible effects on the reduction of inflation, the announcement of the G7 is somewhat watered down. From the outset, we must not forget that the EU already before the summer announced that it would not buy any more Russian oil by ship from 2023 –with the exception of the pipeline that supplies Hungary–, thereby putting a cap on a resource that plan to stop using soon, it has a relative or limited impact for a few months. Not taking into account that such a cap would need the support of all member states (Hungary included).
Likewise, the US also decided in the spring to cut off the tap to Russian oil after the invasion of Ukraine. A very symbolic act that hardly affects him because the Americans only obtain from Russia 1% of the oil they consume and 3% of their crude oil imports. Hence, a ceiling on the price of a Russian barrel hardly means changes to Washington in its energy policy.
For this reason, the G7 communiqué insists on the demand that “a broad coalition” be formed to implement this cap. Otherwise, the effect of this imposition can remain a dead letter. In this sense, Víctor Ruiz Ezpeleta, a professor at OBS Business School and an energy expert, was skeptical about the effectiveness of this decision.
“A price ceiling tax measure will only take effect if all the players agree or at least abide by it, but this does not seem to be the case. China and India do not seem to be up to the task, and may continue to buy Russian oil at better prices or even resell it at a higher margin,” he declares. “The EU does not have many other options. They are playing cat and mouse with Russia”, he comments.
According to data published last June, Chinese imports of Russian oil, taking advantage of large discounts, shot up 55% in the month of May compared to the same period of the previous year. Russia has even surpassed Saudi Arabia.
