G7 leaders meeting for a summit in the Bavarian Alps seek a deal to impose a “price cap” on Russian oil as the group works to curb Moscow’s ability to finance its war in Ukraine.
Talks on the idea continued overnight after beginning Sunday at the luxury resort of Schloss Elmau, where leaders want to enlist a range of countries beyond the G7 to put a cap on the price paid for Russian oil.
They hope a cap will limit the benefit to the Kremlin’s war machine from rising oil prices while cushioning the impact of higher energy prices on Western economies.
The idea has been heavily promoted by the US and recent comments from German officials suggest that Berlin is also buying into the idea.
Officials said Mario Draghi, the Italian prime minister, told his fellow G7 leaders that caps on energy prices were needed because “we must reduce the amount of money going to Russia and get rid of one of the main causes of inflation”.
On Monday, the ceilings will be discussed with a larger group, as the leaders of Germany, the US, UK, France, Italy, Japan and Canada will join “partner” countries invited to the summit. They include India, which has become a big buyer of Russian oil at a discount since the Ukraine invasion, as well as Argentina, South Africa, Senegal and Indonesia.
Charles Michel, president of the European Council, said the EU was ready to decide with its partners on a price cap, but stressed the need for a “clear vision” and awareness of possible side effects. “We want to make sure the goal is to target Russia and not make our lives more difficult and more complex,” he said.
A senior German official said “intense discussions” were taking place over how a cap would be implemented and how it would work with Western and Japanese sanctions. “The problems we have to solve are not trivial, but we are on the right track to reach an agreement,” he said.
In May, the EU agreed to a phased ban on seaborne shipments of Russian oil while temporarily allowing deliveries of crude through pipelines to continue. The United States has already banned Russian oil imports and the UK plans to phase them out by the end of this year.
Energy executives warn that Russia could slash oil supplies in response to any attempts to impose a price cap or further cut gas exports to Europe.
As G7 leaders met, Russia fired missiles at residential areas of Kyiv for the first time in weeks, damaging an apartment building and a kindergarten in an attack that US President Joe Biden has condemned as a “barbaric act.” ”.
UK Prime Minister Boris Johnson on Sunday reiterated the need to maintain consensus and warned of “fatigue” among “the public and the politicians.”
In a sign of solidarity with Ukraine, its president Volodymyr Zelenskyy has been invited to join the summit via video link on Monday.
The economic backdrop to the G7 meeting has been shaped by a war that has pushed up food and energy prices and raised fears of an impending recession. The blockade of Ukrainian ports has raised concerns about food shortages in developing countries, while Russia’s decision to cut off gas supplies to Europe threatens a continent-wide energy squeeze.
Host Olaf Scholz, the German chancellor, said all G7 states were concerned about the “crises we are currently facing”. But he said he was convinced the G7 would send a “very clear signal of unity and decisive action.”
Leaders also point to China. Biden said the G7 built on a deal first announced in Cornwall a year ago to offer infrastructure financing to poor countries as an alternative to China’s Belt and Road Initiative.
“Collectively, our goal is to mobilize almost $600 billion from the G7 by 2027,” he said. The program now has an official name, the Partnership for Global Infrastructure and Investment, and will focus on health financing, digital connectivity, gender equality, and climate and energy.
He said it would allow communities around the world “to see for themselves the concrete benefits of partnering with democracies.”
Ursula von der Leyen, president of the European Commission, said the EU would mobilize 300 billion euros by 2027. The aim, she said, was “to show the world that democracies, when working together, provide the best path to achieve results.” . .
As part of efforts to increase economic pressure on Russia, Britain, Canada, Japan and the US announced measures to ban imports of Russian gold. “We need to deprive the Putin regime of its funding,” Johnson said.
The idea of an oil price cap comes at a time when high crude prices mean that Russia’s revenue from oil exports has not necessarily declined despite Western restrictions on imports of Russian oil.
Concerns are growing that attempts to ban ships carrying Russian oil from Western insurance markets later this year could push global oil prices to record highs. The International Energy Agency warns that it could contribute to the shutdown of more than a quarter of Russia’s production before the invasion.
Under the price cap scheme, Europe would limit the availability of shipping and insurance services that enable the worldwide transportation of Russian oil, requiring that the services only be available if the importer observes the price cap. A similar restriction on the availability of US financial services could give the scheme additional impact.
Scholz has stressed that the concept would need widespread acceptance around the world. It would also require the EU to amend its ban on securing Russian crude shipments, introduced with the ban on oil imports by sea, something that needs the acceptance of all 27 EU states.
The UK would have to join, given that it is home to the Lloyd’s of London insurance market. The EU and the UK have already agreed to coordinate an insurance ban, but London has not finalized its scheme.
Additional reporting by Jasmine Cameron-Chileshe