G7 plan to tighten Russia price cap enforcement will not hit oil supply, IEA chief says

EU and G7 have imposed a $60-a-barrel limit on Moscow's crude and restrictions on petroleum exports

A crude oil tanker in Nakhodka Bay near the port city of Nakhodka, Russia. Reuters

Potential moves by the Group of Seven countries to further enforce price caps on Russian energy exports will not affect the supply of crude oil and refined products, the head of the International Energy Agency said.

Last year, the EU and the G7 agreed to place a price cap of $60 a barrel on global purchases of seaborne Russian crude. This was followed by caps on Russian petroleum exports in February.

The G7 will enhance efforts to counter evasion of the caps “while avoiding spillover effects and maintaining global energy supply”, the group said on Saturday, during its annual leaders' meeting in Japan.

Strengthening the enforcement of price caps will not affect the availability of crude oil and fuel worldwide, Fatih Birol, the IEA’s executive director, told Reuters.

“Any significant changes in the markets as always we will reflect in our analysis, in our reports, but for the time being I don't see a reason to make a change in our analysis,” Mr Birol said.

From left, IEA executive director Fatih Birol, South Korea's President Yoon Suk Yeol, Indonesia's President Joko Widodo and International Monetary Fund managing director Kristalina Georgieva at the G7 summit. AFP

Mr Birol also said that the price cap achieved two primary goals: it managed to maintain a steady flow of Russian oil without causing market tightness, while simultaneously diminishing Moscow's earnings.

“Russia did play the energy card, and it did fail. But there are some loopholes, some challenges for the better functioning of the oil price cap,” he said.

Oil exports from Russia, which has pledged to reduce its output by 500,000 barrels per day until the end of the year, hit 8.3 million bpd in April, the highest since Moscow’s invasion of Ukraine last year, the IEA said in its monthly oil market report last week.

“By our estimates, Moscow did not deliver its announced 500,000 bpd supply cut in full. Indeed, Russia may be boosting volumes to make up for lost revenue,” the agency said.

Meanwhile, the country’s oil export revenue rose by $1.7 billion to $15 billion in April but was down 27 per cent from a year earlier.

In its communique, the G7 said that increased shipments of liquefied natural gas and investment in the sector can be “appropriate” in addressing potential shortages provoked by the crisis.

“It is necessary to accelerate the phase out of our dependency on Russian energy, including through energy savings and gas demand reduction, in a manner consistent with our Paris commitments,” the group said.

Global LNG trade reached a high of $450 billion in 2022 amid a surge in European demand as the region reduced its reliance on Russian gas imports, the IEA said in a February report.

Mr Birol said that calls for more natural gas production will not change the “determination of reaching the 1.5°C goal”.

“The clean energy transition is happening and much faster than many think.”

A record 295 gigawatts of renewable energy capacity was added around the world in 2022, up nearly 10 per cent from the year before, according to the International Renewable Energy Agency (Irena).

Eighty-three per cent of all new capacity last year was produced by renewables, the Abu Dhabi-based agency said in March.