Russia says it will halt oil exports to countries that impose a price cap

“We will simply not supply oil and petroleum products to such companies or states that impose restrictions, as we will not work non-competitively,” Deputy Prime Minister Alexander Novak told reporters Thursday, according to state news agency TASS.

The West has already sanctioned many Russian energy exports, but Moscow has continued to earn billions of dollars a month by diverting oil to China and Asia. The United States, Europe, Canada and Japan have been exploring what more they can do for months. Finance ministers from the G7 countries are aiming to reach an agreement Friday.

The Biden administration has been pushing for governments to introduce a price cap because it would reduce revenue that President Vladimir Putin needs to fund his war in Ukraine, while theoretically allowing Russian barrels to continue to flow to global markets, avoiding a new inflationary supply shock.

“This is the most effective way, we believe, to hit hard at Putin’s revenue, and doing so will result in not only a drop in Putin’s oil revenue, but also global energy prices as well,” White House Press Secretary Karine Jean-Pierre said earlier this week.

But the measure would be extremely complex to police. How, when and by how much the price of Russian oil could be capped remains to be seen. It would also need broad international support to be effective.

British finance minister Nadeem Zahawi said Thursday he was hopeful that G7 ministers would strike a deal.

“It is important because British people at the moment are under huge pressure,” he said during an event organized by the American Enterprise Institute, a Washington think tank.

“There is a real anxiety in households, in business, because of the energy spike,” he added.

Since the beginning of July, oil prices have fallen roughly 18% in anticipation that recession will reduce demand, but they’re still about 20% higher than they were one year ago.

Novak has called the proposals to impose restrictions “completely absurd” and said they could destroy the global oil market, TASS reported.

“Such attempts will only destabilize the oil industry, the oil market,” he said. “This will fully ruin the market,” he added.

Europe and the United States have barred most imports of Russian oil. But the plan to pile pain on Putin hasn’t worked.

Flows of crude oil and other oil products to the United States, United Kingdom, European Union, Japan and South Korea have dropped by nearly 2.2 million barrels per day since the start of the war in Ukraine, according to the International Energy Agency.

But two-thirds of this decline has been rerouted to other markets like China and India, helping pad Moscow’s coffers. Export revenues in July were about $19 billion, the IEA said.
One option the G7 could adopt would be barring companies based in G7 countries from providing insurance or finance for oil cargoes if buyers paid above a certain price.
Russia’s control of large swaths of global energy supplies remains a major challenge six months since its invasion of Ukraine. This week, Russia temporarily halted natural gas deliveries to the region through a vital pipeline and cut off all supplies to a French utility, exacerbating problems that have sent European inflation to a record high of 9%.

Russian state energy giant Gazprom said that the cut in deliveries through the Nord Stream 1 pipeline was due to a planned shutdown for a few days for maintenance work. It is supposed to reopen on Saturday.

— Anna Cooban and Manveena Suri contributed to this report.

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