The Group of Seven joins the European Union in capping the price of Russian oil at $60 a barrel

WASHINGTON (AP) — The Group of Seven nations and Australia joined the European Union on Friday in adopting a $60-per-barrel cap on Russian oil, a key step as Western sanctions aim to reorganize the global oil market. To prevent rising prices and starving President Vladimir Putin of financing his war in Ukraine.

Europe needed to work out the reduced price other countries would pay by Monday, when the EU will impose an embargo on Russian oil shipped by sea. The ban on insurance for these supplies is in effect. The price cap, which was led by the wealthy G-7 democraciesaimed at preventing a sudden loss of Russian oil to the world, which could lead to a new rise in energy prices And more fuel inflation.

US Treasury Secretary Janet Yellen said in a statement that the agreement would help constrain Putin’s “primary source of income for his illegal war in Ukraine while preserving the stability of global energy supplies.”

The agreement comes after a series of last-minute negotiations. Poland has long supported the EU agreement, seeking to reduce the cap as low as possible. After more than 24 hours of deliberation, when other EU states indicated they would support the deal, Warsaw finally relented late on Friday.

A joint statement from the G-7 alliance released on Friday states that the group “is ready to review and adjust the price cap as appropriate,” taking into account market developments and potential impacts on alliance members and low- and middle-income countries.

“Crippling Russia’s energy revenue is the essence of stopping Russia’s war machine,” said Estonian Prime Minister Kadja Kallas, adding that she was happy to cut the cap a few more dollars from previous proposals. She said that for every dollar cut, $2 billion less than Russia’s war chest.

“It’s no secret that we wanted the price to be lower,” Klass added, referring to the differences within the EU. The price of 30 to 40 dollars is what will hurt Russia greatly. However, this is the best compromise we can have.”

The $60 figure caps near the current price of Russian crude, which recently fell below $60 a barrel. Some criticize that as not low enough to carve out one of Russia’s main sources of income. That’s still a significant discount to international benchmark Brent crude, which slid to $85.48 a barrel on Friday, but it could be high enough for Moscow to continue selling even as it dismisses the idea of ​​a cap.

There is a great danger to the global oil market from the loss of large quantities of crude from the second producer in the world. It can lead to higher petrol prices for drivers All over the world, sparking political turmoil for US President Joe Biden leaders in other countries. Europe is already mired in an energy crisisAs governments face protests over the rising cost of livingwhile developing countries are more vulnerable to changes in energy costs.

But the West has faced mounting pressure to target one of Russia’s top money-makers – Oil – to reduce the money flowing into Putin’s war chest and hurt the Russian economy With the war in Ukraine entering its ninth month. Oil and natural gas prices have skyrocketed After demand rebounded from the pandemic and then Ukraine’s foray into unstable energy markets, feeding Russia’s coffers.

“The cap itself will have the desired effect of limiting Mr. Putin’s ability to profit from oil sales and limiting his ability to continue using that money to fund his war machine,” US National Security Council spokesman John Kirby told reporters on Friday.

However, more uncertainty lies ahead. COVID-19 restrictions in China A slowing global economy may mean less thirst for oil. This is what OPEC and allied oil-producing countries, including Russia, indicated in their supply cuts to the world in October. The OPEC+ alliance is due to meet again on Sunday.

That competes with an embargo by the European Union that could take more oil supplies off the market, adding to fears of supply pressures and higher prices. Russia exports nearly 5 million barrels of oil per day.

Putin said that he would not sell oil under a price ceiling, and that he would take revenge on countries that implement this measure. However, Russia has already redirected much of its supplies to India and China And other Asian countries at a discount because Western customers avoided it even before the EU embargo.

Most insurers are located in the European Union or the United Kingdom and may be required to participate in a rate cap.

Russia can also sell oil off the books using the “dark fleet” tankers of ambiguous ownership. Oil may be transported from ship to ship and mixed with oil of similar quality to disguise its origin.

Even under these circumstances, the cap would make it “more expensive, time-consuming and cumbersome” for Russia to sell oil around the restrictions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.

Robin Brooks, chief economist at the Institute of International Finance in Washington, said the price cap should have been applied when oil was hovering around $120 a barrel this summer..

“Since then, obviously, oil prices have fallen and a global recession has become a real thing,” he said. “The truth is, it’s unlikely to be binding given where oil prices are now.”

European leaders promoted their work on the price ceiling, Yellen’s brainchild.

Ursula von der Leyen, president of the European Commission, the EU’s executive arm, said: “The EU agreement on capping oil prices, in coordination with the G7 and others, will significantly reduce Russia’s revenues.” “It will help us stabilize global energy prices, which will benefit emerging economies around the world.”

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Cassert reports from Brussels and McHugh from Frankfurt, Germany. AP reporter Aamir Madani contributed in Washington.