G7 coalition agrees to set fixed rate for proposed Russian oil price cap

The rich Group of Seven countries and Australia have agreed to set a fixed price when they finalize a price cap on Russian oil later this month, rather than adopt a floating rate, sources said on Thursday.

U.S. officials and G7 countries have been engaged in intense negotiations in recent weeks over the unprecedented plan to cap the prices of oil shipments by sea, which is set to come into effect on December 5, to secure the sanctions of EU and US aimed at limiting Moscow. ability to finance its invasion of Ukraine does not strangle the world oil market.

“The coalition has agreed that the price cap will be a fixed price that will be reviewed regularly rather than an index discount,” said a coalition source, who was not authorized to speak publicly. “This will increase market stability and simplify compliance to minimize the burden on market participants.”

The initial price itself has not been set, but is expected to be in the coming weeks, multiple sources said. The coalition partners have agreed to review the fixed price regularly and revise it as needed, the source said, without disclosing further details.

Pegging the price as a discount to an index would have resulted in too much volatility and potential price swings, the source added.

The coalition feared that a floating price set below the international benchmark for Brent would allow Russian President Vladimir Putin to game the mechanism by reducing supply, said a second source with knowledge of the talks.

Putin could benefit from a floating price system as his country’s oil price would also rise if Brent prices spike due to a reduction in oil from Russia, one of the world’s largest oil producers. . The downside of the agreed fixed price system is that it will require more coalition meetings and bureaucracy to review it regularly, the source said.

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U.S. Treasury Secretary Janet Yellen and other G7 officials say price caps, set to begin Dec. 5 for crude and Feb. 5 for petroleum products, will cut funding from Russia without cutting off supply consumers. Russia has said it will refuse to ship oil to countries that set price caps.

The maritime services are eager to see more details of the G7 plan which is due to come into force in a month.

A stable price cap could allow insurers to renew contracts with more confidence and initiate new ones without fear that the price would be adjusted by countries buying Russian oil, which could have exposed insurers to sanctions. .

No immediate comment was available from the Treasury or the embassies of coalition members, which include wealthy G7 nations, the European Union and Australia.

Separately, The Wall Street Journal reported on Friday that the United States and its allies had agreed to further details on Russian oil sales that will be subject to the price cap.

Each shipment of Russian oil transported by sea will only be subject to the price cap when it is first sold to a buyer on land, the countries determined. Reuters could not immediately verify the report which cited people familiar with the matter.

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