ELMAU CASTLE, (Germany): The United States said Monday that the G7 is closing in on a plan to force a lower price for Russian oil in what would be a major escalation of the campaign to punish the Kremlin for its invasion of Ukraine.
“There is also consensus emerging... that the price cap is a serious method to achieve that outcome,” President Joe Biden’s national security advisor, Jake Sullivan, told reporters at the G7 summit in Germany.
A senior US official described talks within the G7 — Britain, Canada, France, Germany, Italy, Japan and the United States — as advancing.
“We’re still in final discussions with other G7 counterparts working to finalise this, but we’re very close to a place where G7 leaders will have decided to urgently direct relevant ministers to develop mechanisms to set a global price cap for Russian oil,” the official said, speaking on condition of anonymity.
The goal of the plan is to starve the Kremlin of its “main source of cash and force down the price of Russian oil.”
While the West has already imposed multiple layers of sanctions on Russia in response to Putin’s order to invade Ukraine in February, the targeting of the oil industry represents the highest economic stakes so far.
The idea is that consumer countries would effectively set a low price for Russian oil, while Moscow, needing the revenue, would have no choice but to accept.
There are major questions, however, about unity among consumer countries and whether Russia really would cave in or instead might retaliate by cutting energy supplies to Europe.
Energy exports are Russia’s biggest revenue earner, while Western countries are among those most heavily dependent on imported oil and gas.
According to Sullivan, the main obstacle to the idea is not so much willingness to go ahead but sorting out the immensely complex logistical and technical aspects.
“The single biggest factor here is that this is not something that can be pulled off the shelf,” Sullivan said.
“It is a new kind of concept to deal with a particularly novel challenge, which is how to effectively deal with a country that’s selling millions of barrels of oil a day and (to) try to deprive it of some of the revenues.”
The White House also unveiled new measures to hamper Russia’s ability to resupply the weaponry used in its onslaught against neighbouring Ukraine.
“G7 leaders will align and expand targeted sanctions to further restrict Russia’s access” to Western technology that can support the Russian arms industry, the White House said.
And the United States will also “aggressively target Russian defence supply chains... and limit Russia’s ability to replace the military equipment it has already lost during its brutal war”.
In another measure meant to punish Russia and increase assistance to pro-Western Ukraine, the G7 plans to turn funds raised in recently imposed trade tariffs on Russian exports into assistance for Ukraine.
G7 leaders “will seek authority to use revenues collected by any new tariffs on Russian goods to help Ukraine and to ensure that Russia pays for the cost of its war”, the senior US official told reporters.
With soaring fuel prices at the heart of painfully high inflation in the United States and other G7 countries, leaders want to be sure that any oil price cap would also “minimise the spillovers and the impact on the G7 economies and the rest of the world.”
“The G7 leaders are going to acknowledge those two objectives and also acknowledge that the path forward is to urgently direct ministers to work on achieving a price cap which can, in our judgement, best achieve both of those objectives simultaneously,” the senior US official said.
The idea of price capping Russian oil — and also gas — has support from Italy and also France.
The French presidency has however said the measure would be “much more powerful if it came from the producing countries”, and that it was necessary to work with OPEC+ and other oil producers around the world.
The United States and Canada, which are far less reliant on Russia as an energy supplier, have banned all Russian oil imports. Europe is seeking to lessen its own reliance.