G7 Russian oil price cap and EU embargo come into force

© Reuters/Tatiana Meel

The price cap on Russian oil agreed by the European Union (EU), G7 and Australia is set to come into force on Monday. It aims to restrict Russia's revenue while making sure Moscow keeps supplying the global market.

The cap is due to take effect alongside an EU embargo on maritime deliveries of Russian crude oil, which comes several months after an embargo imposed by the United States and Canada.

The decision was taken in May after long weeks of discussions and only concerns oil transported by sea.

Russia is the world's second-largest crude exporter and without the cap it would be easy to find new buyers at market prices.

The measure means only oil sold at a price equal to or less than $60 (€56.85) per barrel can continue to be delivered.

Companies based in the EU, G7 countries and Australia will be banned from providing services enabling maritime transport, such as insurance, with oil above that price.

The G7 nations - Canada, France, Germany, Italy, Japan, the United Kingdom and the United States - provide insurance services for 90 percent of the world's cargo and the EU is a major player in sea freight.

This means they should be able to pass on the cap to the majority of Russia's customers around the world, making for a credible price cap.

There is a transition period, and the cap will not apply to cargoes loaded before 5 December, and a further cap on oil products will come into effect on 5 February.

The West has adopted the cap of $60, well above the current cost of producing oil in Russia, so Moscow will have an incentive to continue pumping crude. Russia will continue to earn revenue, even if it is reduced.

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