Russian Oil Price Restriction by G7 Countries

VIVA – The Group of Seven (G7) countries began forcing price caps on Russian oil on Monday, December 5, 2022. This is an effort to limit Moscow's ability to finance the war in Ukraine. Previously, Russia made it clear that it would not comply with the move even if it had to cut production. 

The seven countries in the G7 are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The G7 and Australia on Friday agreed to a price cap of US$60 or around (IDR924.000) per barrel for cross-border crude from Russia after EU members overcame objections from Poland. Russia is the world's second-largest oil exporter.

The President of Ukraine, Volodymyr Zelensky said the world has shown weakness by setting such as price cap, while Russian Deputy Prime Minister, Alexander Novak said on Sunday, it was a major disruption that violated free trade rules.

"We are working on a mechanism to prohibit the use of price capping instruments, regardless of the amount set, as such interference can destabilize the market even more," said Novak, the Russian official in charge of oil, gas, atomic energy, and coal.

"We will sell oil and oil products only to countries that will work with us under market conditions, even if we have to slightly reduce production," he added.

The G7 policy means that Russia can only sell its oil to third countries using tankers, insurance companies, and credit institutions from the G7 and EU if the oil is purchased with a ceiling of $60 per barrel.

Industry players and a US official said in October that Russia could still access enough tankers to ship most of its oil outside the G7 cap.

According to Zelensky, the $60 price cap will have little effect on Russia waging war in Ukraine. "You can't call it a serious decision to set a price ceiling for Russia, which is quite comfortable in the budget of the terrorist state."

The United States and its allies have imposed massive sanctions on Russia since Moscow invaded Ukraine on February 24 and sent billions of dollars in aid to the Ukrainian government.

President of French, Emmanuel Macron drew criticism from Ukraine and its Baltic allies at the weekend for his suggestion that the West should consider Russia's need for security guarantees if it agrees to talks to end the war. Zelensky adviser Mykhailo Podolyak said the world needs security guarantees from Russia, not the other way around.