Home NewsEurope G7 and EU Impose Price Cap on Russian Seaborne Oil Supply

G7 and EU Impose Price Cap on Russian Seaborne Oil Supply

by Thaabit Kamaar

Photo by [BusinessLive]


The G7, along with the European Union and Australia, imposed a price cap of $60 per barrel on Russian seaborne oil which took effect on Monday, December 5.

However, many European countries believe the price cap is too high to have an impact on the Russian economy. As of Friday, Russian crude is trading at $67 per barrel.

The embargo will also apply to EU insurers and shipping firms which allow Russia to ship and distribute its crude oil globally.

Independent Online reports the agreement allows Russian oil to be shipped to third-party countries using EU and G7 services, so long as the cargo is bought at or below the $60 per barrel cap.

Russia, the world’s second-largest oil producer, said it will not adhere to the imposed price cap and will not sell its oil to countries that comply.

The issue of oil, gas and energy supply has been at the centre of the conflict in Ukraine. Hence, the price cap aims to reduce or limit Russia’s ability to finance its military presence in Ukraine.

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The Indirect Consequence of the Price Cap

According to Ashraf Patel, Senior Associate at the Institute for Global Dialogue, Russia is different from other countries which have been sanctioned.

And sure enough, Russia will be impacted by the price cap in terms of services and infrastructure of the EU and G7 partners, but not by much.

Patel believes Russia has proven adaptable and agile in bypassing western sanctions. They are more than capable of developing alternative systems to those used globally.

Patel said, “Already Russia and China are developing a payment system for global trade. The unintended effect of this would be essentially BRICS and other nations would create alternative systems of trade, payment and insurance. In fact, it may have unintended consequences for the G7 … I think the EU may have made an error on this one. It will be contained, and Russia will gain more partners in the OPEC community and the broader south.”

The Impact of the Price Cap on Global Oil Supply

ABC News reported the price cap risks disrupting the global oil supply, and some analysts anticipate the price of oil and gas to spike in the coming months.

Most EU countries still rely on Russia for the energy supply. Therefore, the decision to cap the oil price might impact their citizens and many countries in Africa and South America.

What does it mean for South Africa? Will we get oil and gas for being a part of BRICS? Patel said South Africa is integrated into the global financial and trade markets and will pay the market rate for the supply.

“We’re not leveraging our partnership with BRICS under the current administration. Therefore, we may lose on some of the concessions. It’s a very complicated world, it’s very congested, and South Africa is a very small player. We have not invested in critical infrastructure in the last few years, and we have not invested in refineries. Therefore, the problem is our own and not necessarily the global market”.

However, he continues to state South Africans should have moderate concerns regarding the price cap on oil supply.

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