G-7 Price Cap On Russian Oil Goes Into Effect
In an effort to weaken Russia’s ability to finance its invasion of the Ukraine, the United States, the European Union, and other G-7 countries have implemented a price cap on oil from Russia.
Specifically, the agreement bans Western companies from shipping or insuring Russian oil unless it is sold for less than $60 per barrel. The cap works by prohibiting access to services such as insurance and trade finance for shipping Russian oil if it is sold above the price cap.
According to a Treasury Department fact sheet, the G-7 controls about 90 percent of the market for relevant insurance.
As The Wall Street Journal, explained, the $60 per barrel cap is above Russia’s $40 per barrel cost of production, but below a $70 per barrel price the country needs to balance its budget. Even the Russian government admits the cap will put a squeeze on the country’s finances. According to Markets Insider, in a report last week Russian central bank analysts acknowledged the price cap could “significantly reduce” the country’s economic activity in the coming months.