G-7 leaders meeting for a summit in the Bavarian Alps on Sunday are looking for a deal to impose a “price cap” on Russian oil as the group works to limit Russia’s ability to fund its four-month war in Ukraine. .
The goal would be for a wide range of countries outside the G-7 to impose a ceiling on the price paid for Russian oil to limit the benefits to the Kremlin’s military machine of the rising price of crude oil. This will also mitigate the impact of higher energy prices on Western economies.
The idea was widely promoted by the United States. Although Germany has long had reservations about this, recent comments from German officials suggest that Berlin is moving closer to the idea.
Charles Michel, the president of the European Council, said leaders would discuss the upper limit on oil prices in the coming hours, stressing the need for a “clear vision” and awareness of possible side effects.
Such a deal would require the support of all 27 EU member states, and officials would have to resolve difficult questions about how it would work and fit into the sanctions regimes of the United States, Britain, Europe and Japan.
In May, the EU agreed to a phasing out of offshore supplies of Russian oil, while allowing a temporary dumping of crude oil supplied by pipeline. The measures are expected to reduce Russian oil exports to the EU by 90 percent by the end of this year.
G-7 leaders are meeting as the effects of the war in Ukraine cast a growing shadow on the world economy. The blockade of Ukrainian ports has raised food prices, and Russia’s decision to cut gas supplies to Europe threatens an energy crisis.
As inflation rises and central banks respond with more aggressive interest rate hikes than markets expect, economists around the world are lowering their growth forecasts, with some even warning of a recession.
The meeting in the luxury Bavarian resort of Schloss Ellmau is hosted by German Chancellor Olaf Scholz. He was joined by the leaders of the United States, Britain, France, Italy, Japan and Canada. Argentina, South Africa, Senegal, Indonesia and India are invited as partner countries.
G7 leaders announced on Sunday that they would ban imports of Russian gold as part of efforts to tighten sanctions against Moscow. “We need to tire the Putin regime of funding it,” said British Prime Minister Boris Johnson. “That’s exactly what the United Kingdom and our allies are doing.”
A German official said that with regard to Ukraine, the G7 would aim to send a “message of unity” and a “signal of support” to Kyiv. Ukrainian President Volodymyr Zelensky will join the summit via video link on Monday.
Johnson reiterated on Sunday the need to maintain a consensus on Russian aggression in Ukraine, warning that there could be “fatigue” among “the population and politicians.”
Asked if he was concerned about the weakening of support for Ukraine, Johnson said: “I think the pressure is there and the anxiety is there, we have to be honest about that.”
The idea of a price cap on oil comes at a time when experts are worried that sanctions against Russia risk backfires. Despite Western restrictions on Russian oil imports, Russia’s revenue from oil exports has not necessarily fallen because the price of crude oil has risen so sharply.
Michelle said: “We want to make sure that the goal is to focus on Russia, not to make our lives more difficult and complicated. We need to make sure that if we make such a decision, there is a clear vision, a clear common understanding of what the direct effects are and what the side effects may be. “
He said the EU was ready to take a decision with its partners, but stressed that it was “careful and cautious” on the issue.
A senior German official said there were “intensive discussions” on how to enforce the price cap and work with Western and Japanese sanctions.
“The problems we have to solve are not trivial, but we are on the right track to reaching an agreement,” he said.
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Under the oil price cap scheme, Europe will limit the availability of shipping and insurance services that allow Russian oil to be transported around the world, requiring services to be available only if the price cap is met by the oil importer. Such a restriction on the availability of US financial services could have an additional impact on the scheme.
Scholz stressed that the concept would require broad participation around the world to be effective.
It will also require the EU to change its ban on insuring Russian crude oil supplies – introduced in connection with the ban on offshore oil imports – something that needs to be bought by all 27 EU member states.
The United Kingdom will have to get involved, given that it is home to Lloyd’s of London’s insurance market. The EU and the United Kingdom have already agreed to coordinate the insurance ban, but London has not yet finalized its scheme.
At their summit, G7 leaders will also discuss how to prevent a global “hunger crisis” amid growing food insecurity caused by the war in Ukraine. They will also discuss a German proposal for a “climate club” in which the participating countries will coordinate their efforts to decarbonise their economies.
Additional report by Jasmine Cameron-Chileche
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