G7 imposes price cap on Russian oil

BRUSSELS Reuters - The Group of Seven price cap on Russian seaborne oil came into force on Monday as the West tried to limit Moscow's ability to finance its war in Ukraine, but Russia has said it will not abide by the measure even if it has to cut production.

The price cap, to be enforced by the G7, the European Union and Australia, comes on top of the EU's embargo on Russian crude by sea and similar pledges by the United States, Canada, Japan and Britain.

It allows Russian oil to be shipped to third-party countries using G 7 and EU tankers, insurance companies and credit institutions, only if the cargo is below the price cap.

Because the world's key shipping and insurance firms are based in G 7 countries, the cap could make it hard for Moscow to sell its oil for a higher price.

Russia, the world's second largest oil exporter, said on Sunday it would not accept the cap and would not sell oil that is subject to it, even if it has to cut production.

Since World War Two Soviet geologists found oil and gas in the swamps of Siberia, Russian foreign currency earnings have been one of the main sources of Russian foreign currency earnings.

A source who asked not to be identified said that a decree was being prepared to prohibit Russian companies and traders from interacting with countries and companies guided by the cap, and was told by a source who asked not to be identified due to the sensitivity of the situation.

In essence, such a decree would ban the export of oil and petroleum products to countries and companies that apply it.

The EU and G 7 countries think Russia will still have an incentive to sell oil at the price, while accepting smaller profits, because of the price cap set at $60 per barrel, not much below the $67 level where it closed on Friday.

The EU and the G 7 will review the cap every two months, with the first such review in mid-January.

The European Commission said in a statement that this review should take into account the effectiveness of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments.

The cap on crude will be followed by a similar measure that will affect Russian petroleum products that will come into force on February 5, though the level of that cap has not yet been determined.