Having lost the original enthusiasm, G7 nations might not be keen anymore in putting a price cap on Russian oil. Opposition came also from outside the G7 member states.
After the oil price cap was included in the 8th EU package of sanctions against Russia, the measure was brought to the G7 table for discussing its implementation. Immediately, it sparked discussion between member states.
After Russia invaded Ukraine last February, the entire Western hemisphere was set on giving Putin a hard lesson through the use of economic sanctions. Not everyone, however, was on board as they feared it would hurt their economy. Germany in particular, which is especially dependent on Russia’s exports of gas and oil, has always been reluctant to sanctions against the Eastern giant.
In any case, the European Union had finally agreed in May to halt imports of Russian oil. To give Eastern European nations (and Germany) some time, it was decided that this ban would consist in a slow phase out to be completed on December 5th 2022.
This measure, however, allowed Russia to sell oil to third party countries (like China and India) who would then resell it to Europe at a higher price. So, the crisis needed another solution and some weeks ago EU ambassadors ratified an oil price cap to be included in the 8th sanction package.
After this measure was decided upon, with great enthusiasm by the President of EU Commission Ursula Von Der Leyen, it was scheduled to be discussed at the impending G7 meeting.
The G7 meeting dodged the decision on the oil price cap
Within the G7, three countries have already banned Russian oil completely: Canada, the UK and the US. Furthermore, Italy, France and Germany are part of the EU, so they would technically ban Russian oil on December 5th.
The US insisted on implementing a strong price cap on Russian oil, in order to hurt their economy even if they sell it through third party countries. US Secretary of State Janet Yellen said that an oil price cap “will help deliver a major blow for Russian finances and will both hinder Russia’s ability to fight its unprovoked war in Ukraine and hasten the deterioration of the Russian economy.”
This measure, however, sparked the opposition of Germany who fears that a price cap on oil would spark demand and create a shortage. German Chancellor Olaf Scholz also argued that it would be difficult to make the measure work if India and China are not on board. They are, right now, the two biggest importers of Russian oil and would be the countries targeted by the price cap.
Finally, Indonesian Finance Minister Sri Mulyani Indrawati reminded that an oil price cap will immensely hurt every other nation outside the G7 and the EU. Especially nations, like Indonesia, who need oil to supply their developing economies. Indrawati also mentioned the cut in oil supplies implemented by OPEC, which would damage his country even more after an oil price cap is put into place.
So, despite initial enthusiasm, the oil price cap measure might fail. Unless, as always, the United States asks everyone very politely…
