G7 strikes deal on Russian oil price cap
G7 governments have struck agreement on a price cap on Russian crude imports, an attempt to cut off Russian state oil revenue amid ongoing hostilities in Ukraine.
A joint communique by G7 finance ministers outlining the cap was published on September 2. The G7 first agreed to impose a price limit in June, with the cap expected to cover oil refiners and trading in G7 markets.
The initial price cap will reflect a "range of technical inputs" to be decided by the full G7 finance ministers' group, before implementation in each jurisdiction. In the EU, unanimous backing for the measure must be secured from all 27 member states.
G7 officials told The Guardian both China and India, which remain neutral to Moscow's actions in Ukraine, had raised the prospect of paying above the new G7 regulated crude price, undermining the measure as the Kremlin could divert crude cargoes at profit into Asia. The US, Japan, France, Canada, Germany and the UK make up the G7 bloc, while the EU attends as an observer.
EU commission president Urusula von der Leyen believes Russian piped gas should be subject to a similar price mechanism, telling reporters after a recent legislator's meeting she was firmly of the opinion it was the right time for robust regulation.
Since Moscow invaded Ukraine in February, the EU's dependence on Russian gas has slowed action on throttling Gazprom's sell-through price.
Seven months later, however, and great strides to limit Russian gas usage in several European economies could help von der Leyen strike a greater chord with national governments. Across the EU, gas storage facilities are drawing closer to the EU's 80% capacity target, due to come into force on November 1.
Elevated distrust over Gazproms' actions at Nord Stream can only give further weight to von der Leyen's position. The Russian gas export monopoly has admitted further disruption at the Nord Stream route is a possibility, as only a single turbine had restarted operations at the Portovaya compressor station, blamed for the curtailments in European supplies that started in June.
Von der Leyen will on September 14 float proposed emergency measures to offset the energy price surge, Reuters reported. Nord Stream is expected to return to 20% of its normal capacity September 3, when Gazprom says a three-day maintenance turnaround will have been completed.
"A gas price cap can be proposed at European level, and there also is a legal foundation at European level to skim profits temporarily at a time of crisis," von der Leyen added, without specifying the profit charge mechanism in question.
A move to extend the cap to Russian piped gas must also contemplate Moscow's ability to target Asian buyers. Gazprom CEO Alexei Miller said August 31 that a second gas field to feed China's 38bn m3/yr piped gas route would come online by year-end, increasing its revenue potential from gas piped to the East. Gazprom has reportedly started flaring gas volumes otherwise destined for European markets, if not for Nord Stream's curtailments, suggesting it has the will to absorb the shock of lost European revenues.