The Ukraine Crisis: Effort to Cap Russian Oil Prices Faces Market Hurdles

"PARIS -- The Group of Seven major economies wants to impose a price cap on Russian oil exports.

The challenge is enforcing it on buyers world-wide.

The G-7 leaders said Tuesday after their summit they were exploring a ban on the provision of maritime services to tankers carrying Russian oil, unless the oil were sold below a particular price. Backers say the proposal would achieve two goals: cutting Russian oil sales that are fattening Moscow's foreign-exchange coffers and lowering global oil prices that have surged since the sanctions on Russia.

Russia, one of the world's largest oil exporters, has seen its oil revenue surge despite moves by the West to stop buying Russian crude.

Moscow instead has turned its shipments to China, India, Turkey and other developing nations that have bought huge quantities of Russian oil since the war began in February at a discount of more than 20%, compared with Western oil prices.

Russian oil is also still flowing into Europe, which has decided to ban most purchases of Russian oil but only starting at the end of the year.

To have an impact, some analysts say, any price cap would in theory need to be set lower than the already discounted price for Russian oil.

"Placing a cap is a very good idea," said French President Emmanuel Macron after the summit. "The difficulty is technical -- Russian oil doesn't arrive by a single pipe."

Mr. Macron said the G-7 economies -- the U.S., Japan, France, the U.K., Germany, Italy and Canada -- aim to assemble a broad coalition of countries beyond the G-7 that would abide by the price cap. That effort could be difficult, a French official said, because big buyers of oil also produce it.

The G-7 economies are also discussing using sanctions on maritime insurance to enforce the cap on tankers that bring Russian oil around the world. Insurance collectives and companies based in the West provide cover for around 90% of maritime traffic world-wide.” [1]

1.  The Ukraine Crisis: Effort to Cap Russian Oil Prices Faces Market Hurdles
Dalton, Matthew. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 29 June 2022: A.8.