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G7 oil price cap ends in fiasco as crude oil prices still fluctuate around $80/barrel

The G7 countries oil price cap of $60 per barrel for Russian oil trade through sea with effect from Dec 5, 2022, proved an exercise in futility as international crude oil prices remained almost unchanged even 10 days after cap put in place.

For a few days, the Brent crude oil fluctuated around $81 to $76/barrel when the oil price cap came into force from Dec 5.

However, again the international crude oil prices soared to above $80/barrel.

Analysts said that after the enforcement of G7 price cap, everyone was expecting a crash in the oil prices, nonetheless, this did not happen till today (Dec 16).

Therefore, oil experts believe that the G7 countries decision, backed by the European Union, ended in a fiasco.

Meanwhile, according, the price cap on Russian oil exports that went into effect last week to much anxiety about a possible cut in shipments has, so far, not elicited any dramatic response in the form of export curbs.

On the contrary, Russia is reportedly considering quite a mild response to the sanction action. Citing unnamed sources familiar with the matter that the Kremlin’s reaction will be a decree by President Putin that will not include a floor price for the crude or a ban on shipments to specific countries.

What the decree will include will be a stipulation that Russia will not sell oil under contracts that feature a price cap clause. As the report notes, this should not have any effect on exports because buyers are not obliged to include such a clause in their contracts under the price cap regime.

Earlier this week, Russian business daily Vedomosti reported, also citing sources in the know as saying that Russia will not sell oil to countries that enforce the price cap and that it will not sell oil under contracts that mention the price cap as a condition for the sale or use of it as reference for the buying price.

According to that second report, the decree, due to be signed into law by President Putin in the next few days, would be in effect until July 2023 and will not affect contracts closed prior to December 5.

These two reports suggest that fears about an oil market disruption following the introduction of the cap may have been premature. To begin with, the stipulation that Russia will not sell oil to countries enforcing the cap is little more than symbolic.

The EU itself banned most Russian oil imports. The U.S. and the UK installed such bans earlier this year, and Japan has been exempted by both the G7 and Russia from any sanction action that would threaten its energy security. Meanwhile, Russia’s biggest buyers have made it clear that they will not enforce the cap.

The price cap itself is little more than a symbolic move, too. At $60 per barrel, the cap level is, right now, more than $10 higher than the price at which Russia’s flagship Urals is currently trading. Of course, if this changes, the price cap may—or may not—start having an actual effect on Russian oil exports, but for now, it has no real impact.

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I am an experienced writer, analyst, and author. My exposure in English journalism spans more than 28 years. In the past, I have been working with daily The Muslim (Lahore Bureau), daily Business Recorder (Lahore/Islamabad Bureaus), Daily Times, Islamabad, daily The Nation (Lahore and Karachi). With daily The Nation, I have served as Resident Editor, Karachi. Since 2009, I have been working as a Freelance Writer/Editor for American organizations.


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