Russia threatens to cut off oil following G7 and EU's price cap

Credit: AP

Russian authorities rejected a price cap on the country’s oil set by Ukraine’s Western supporters and threatened to stop supplying the nations that endorsed it.

On Saturday, the G7 and Australia joined the EU in adopting a $60 (£48) per-barrel price cap on Russian oil, in a bid to ramp up Western financial sanctions.

Kremlin spokesman Dmitry Peskov said Russia needed to analyse the situation before deciding on a specific response but that it would not accept the price ceiling. Russia’s permanent representative to international organisations in Vienna, Mikhail Ulyanov, warned that the cap’s European backers would come to rue their decision.

“From this year, Europe will live without Russian oil,” Mr Ulyanov tweeted. “Moscow has already made it clear that it will not supply oil to those countries that support anti-market price caps. Wait, very soon the EU will accuse Russia of using oil as a weapon.”

The office of Ukrainian President Volodymyr Zelenskyy, meanwhile, called on Saturday for a lower price cap, saying the one adopted by the EU and the Group of Seven leading economies didn’t go far enough.

The measure, which is due to come into effect on Monday, is hoped to reorder the global oil market to prevent price spikes and hit President Putin's war chest.

Europe needed to set the discounted price that other nations will pay by Monday, when an EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies take effect.

US Treasury Secretary Janet Yellen said in a statement that the agreement will help restrict President Putin’s “primary source of revenue for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies.”

UK Chancellor Jeremy Hunt backed the move and stated the UK would not waver in its support for Ukraine and would look for additional avenues to "clamp down on Putin's funding streams".

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The agreement comes after a last-minute flurry of negotiations. Poland long held up an EU agreement, seeking to set the cap as low as possible.

Following more than 24 hours of deliberations, when other EU nations had signalled they would back the deal, Warsaw finally relented late Friday.

As the cap was agreed, US President Joe Biden stated he does not intend to speak to his Russian counterpart, Vladimir Putin, about ending the Ukraine war as conditions for such discussions currently do not exist, White House officials said.

While UK Foreign Secretary James Cleverly warned that peace talks could give Putin a chance to rearm. Mr Cleverly said Western powers needed to be “very, very careful” if the Russian leader sought to initiate negotiations purporting to seek an end to the conflict.

A joint G7 statement stated that the group is “prepared to review and adjust the maximum price as appropriate," taking into account market developments and potential impacts on coalition members and low and middle-income countries.

Foreign Secretary James Cleverly has warned that Putin could use peace talks as an opportunity to rebuild Russia’s battered forces. Credit: PA

Some criticise that as not low enough to cut into one of Russia's main sources of income. It is still a big discount to international benchmark Brent, which slid to $85.48 a barrel, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

There is a big risk to the global oil market of losing large amounts of crude from the world’s Number two producer.

It could drive up fuel prices for drivers worldwide, which has stirred political turmoil for US President Joe Biden and leaders in other nations.

Europe is already mired in an energy crisis, with governments facing protests over the soaring cost of living, while developing nations are even more vulnerable to shifts in energy costs.

Russia has already rerouted much of its supply to India, China and other Asian countries at discounted prices because Western customers have avoided it even before the EU embargo.