G7 to impose Russia oil price cap – US Treasury guidance in the pipeline
On 2 September, the finance ministers of the G7 countries said that they intended ‘to finalise and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally.’
‘The provision of such services,’ they said, ‘would only be allowed if the oil and petroleum products are purchased at or below a price (“the price cap”) determined by the broad coalition of countries adhering to and implementing the price cap.’
According to the statement, the price cap ‘is specifically designed to reduce Russian revenues and Russia´s ability to fund its war of aggression whilst limiting the impact of Russia´s war on global energy prices, particularly for low and middle-income countries,’ and that the measure would ‘build on and amplify the reach of existing sanctions, notably the EU´s sixth package of sanctions, ensuring coherence through a strong global framework.’
The statement continues: ‘The initial price cap will be set at a level based on a range of technical inputs and will be decided by the full coalition in advance of implementation in each jurisdiction. The price cap will be publicly communicated in a clear and transparent manner. The price cap’s effectiveness and impact will be closely monitored and the price level revisited as necessary.’ It is ‘envisaged that practical implementation of the price cap will be based on a recordkeeping and attestation model covering all relevant types of contracts. We aim to ensure consistent implementation across jurisdictions. In implementation, we would aim to limit possibilities for circumventing the price cap regime, while at the same time minimising the administrative burden for market participants.’
In a follow-up statement, US Secretary of the Treasury Janet L. Yellen said,
‘By committing to finalize and implement a price cap, the G7 will significantly reduce Russia’s main source of funding for its illegal war, while maintaining supplies to global energy markets by keeping Russian oil flowing at lower prices. While we’ve seen energy prices ease in the United States, energy costs remain a concern for Americans and continue to be elevated globally. This price cap is one of the most powerful tools we have to fight inflation and protect workers and businesses in the United States and globally from future price spikes caused by global disruptions.’
The Treasury added that it ‘anticipated publishing preliminary guidance on the implementation of the price cap in September,’ such guidance to provide ‘a high-level overview of this mechanism, including how U.S. persons can comply, in advance of formal guidance and legal implementation to be issued at a later date.’
