Capping the price of Russian oil, an approach G7 members said Friday they want to pursue “urgently,” would be an unprecedented move and one which some analysts say could backfire.
Russian oil would be purchased at a discount from prevailing market prices, to limit Moscow’s profits as it prosecutes its war against Ukraine; but it would keep the price above the cost of production to ensure incentive for its export. The discounted rates, calculated separately for crude oil and refined petroleum products, could be regularly revised, according to a US Treasury official.
There have been international systems aimed at preventing a nation from exporting oil – such as those now targeting Iran and Venezuela – or at limiting trade, as in the UN “Oil-for-Food” program which, from 1995 to 2003, allowed Iraq to sell oil but only to pay for food, medicine and humanitarian needs. But there has never been an attempt to impose a differentiated price on a country.
G7 members (Britain, Canada, France, Germany, Italy, Japan and the United States) have already limited or suspended their Russian petroleum purchases. But for the plan to be effective, other countries will have to take part – particularly big countries like India and China, some of Russia’s most important clients.
While the G7 plan offers the prospect of lower prices, “China and India are already getting cheaper – cheap enough – oil,” said Bill O’Grady of Confluence Investment.
“Russia could say, ‘Look, we’re just going to sell this oil at this price. We’re not going to sell it to Europeans.’” “I don’t think that the Chinese or the Indians or the Turkish will go on” with the G7 plan, he said, noting that those countries had
