Alexander Novak, deputy prime minister of the Russian Federation, told Channel One that if the price of Russian oil falls below the extraction cost, Russia would not supply energy to global markets.
If the prices discussed by the G7 members fall under the cost of production, Russia would not be able to export this oil, and Moscow would not operate at a loss.
In June it became known that the G7 was exploring new sanctions against Russia. The idea is to set a price ceiling on Russian oil, with a possible ban on sea-based oil shipments if the price exceeds the agreed cap.
The plan is to apply these measures globally, though there is limited alignment between the EU and the United States. Negotiations with other partners are ongoing.
On July 18, US Treasury Secretary Janet Yellen spoke with her Indian counterpart and described the talks as encouraging. India reportedly disagreed but did not express strong opposition to the idea.
Shortly before that, Yellen conducted productive discussions with colleagues from several countries on the sidelines of the G20 summit in Indonesia. The topic remained the same — a ceiling on Russian oil prices.
In her words, after conversations with more than half a dozen partners, the potential benefits of price restrictions were discussed, highlighting their effectiveness in addressing high prices faced by consumers in the United States and worldwide.
According to the US Treasury, Yellen met in Indonesia with officials from Saudi Arabia, Australia, South Africa, Singapore and Turkey.
How will the oil price ceiling work?
Yellen explained that Western nations aim to set a maximum price at a level permitting Russia to continue extracting and selling its energy resources without collapsing the flow of supply.
The head of the treasury noted that the mechanism is needed to prevent Russia from being cut off from providing essential services, which could disrupt the global oil market and push prices higher. There is no plan to negotiate this cap with Russian officials.
Western decision making followed the European Union’s embargo on Russian pipeline oil, which drove fuel costs higher. Moscow redirected supplies to other markets, especially India and China, while offering oil at discounted rates in some cases.
The situation has contributed to difficulties in the EU and the United States and has also fed inflation in Western economies.
What might the “ceiling” lead to?
Russia views the oil price cap as a challenge to market mechanisms, warning that it could trigger instability, resource shortages, and higher prices for consumers. Analysts at JPMorgan share a cautious stance. Earlier reporting cited experts indicating that price limits could prompt Russia to cut oil output by up to several million barrels per day, potentially pushing global oil prices higher even if Russia reduces supply. At present, crude trades around the 110 dollar mark per barrel, with market dynamics continuing to evolve.
Overall, observers note that the cap aims to limit Russia’s revenue while attempting to maintain adequate energy access for major economies. The interplay between sanctions, supply routes, and price signals remains a live topic for policymakers and markets alike, with developments closely watched by analysts and governments around the world. [Citation: Reuters]