Tue. Jul 26th, 2022

G7 to explore caps on energy prices to curb Russian revenues

G7 members will explore ways of curbing energy costs, including via possible caps on the price of oil and gas, as leaders vow to prevent Russia from profiting from its “war of aggression” against Ukraine.

In a communiqué released on Tuesday, the G7 leaders said they would look for ways to reduce Russia’s hydrocarbon revenues while minimising the negative impact of high energy prices, especially on low and middle-income countries.

The leaders said they would explore the “feasibility” of introducing temporary price caps on energy imports — a reference to a US-led push for a ceiling on the Russian oil price. A G7 official said earlier that capitals agreed it was a good idea, but a “great deal of work” remained to be done to make it a reality.

In their communiqué, the leaders agreed to “continue to impose severe and immediate economic costs on President Vladimir Putin’s regime” for its “unjustifiable war of aggression against Ukraine”.

The conclusions underscore the deep alarm among G7 leaders about the toll the Ukraine war is taking on their economies.

They said it had exacerbated the economic impact of the Covid-19 pandemic, “dragging down growth, causing significant increases in commodity, energy and food prices and thereby pushing up inflation to levels not seen for decades”.

The price cap idea is motivated by concern that Russia was benefiting from the surge in energy prices triggered by the Ukraine war, despite the restrictions G7 member states have imposed on Russian energy imports.

In the final statement the leaders said they were “working to make sure Russia does not exploit its position as an energy producer to profit from its aggression at the expense of vulnerable countries”.

They also expressed concern about the burden of energy price increases and market instability, warning that they “aggravate inequalities nationally and internationally and threaten our shared prosperity”.

The G7 agreement encompasses an effort to explore caps on gas prices, and not just on oil, reflecting a push by Italian prime minister Mario Draghi, who has been advocating the idea for months. Recommended LexG7 Russia/sanctions: G7 seeks more damage to the war machine, less to its own economies Premium content The G7 agreement pledges to consider a range of approaches on the oil price cap, including options for a “possible comprehensive prohibition of all services” which enable the transportation of Russian seaborne oil, unless it is priced at or below a cap which is to be determined in consultation with international partners.

The idea is to enforce the cap by limiting the availability of European insurance for Russian shipments, as well as shipping services and US finance.

Under the scheme, those services would only be available to importers who adhered to the price ceiling. G7 leaders said their ministers would evaluate the feasibility of a price cap as a matter of urgency.

But officials have cautioned that the scheme is highly complex and will need intensive technical work, as well as buy-in from both industry and a wide range of non-G7 countries that import Russian oil. It could also face challenges in the EU where sanctions require the consent of all 27 member states.

“We are supportive of the basic structure,” said one G7 official about the price cap idea. “But the details need to be hammered out.”

Another said that all G7 states agreed with the “basic idea that we have to reduce the sources of revenue for Russian oil”.

ExxonMobil chief executive Darren Woods told the Financial Times that trying to fix prices in the oil market would be a “complicated challenge”.

“It’s not obvious to me how that mechanism would work,” he said. “In oil and gas, markets work very efficiently and effectively.”

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