Russia 'will not sell oil at G7 price' as cap comes into force

Moscow says it will not accept price cap or sell oil subject to it

The Vladimir Arsenyev tanker at the Kozmino oil terminal near the port city of Nakhodka in Russia. Reuters

Russia has said it will not abide by the the price cap set by G7 nations on its seaborne oil, even if it has to cut production.

The G7 price cap took effect on Monday as the West tries to limit Moscow's ability to finance its war in Ukraine.

Enforced by the G7, the EU and Australia, the price cap comes on top of the EU's embargo on imports of Russian crude by sea and similar pledges by the US, Canada, Japan and Britain.

It allows Russian oil to be shipped to third-party countries using G7 and EU tankers, insurance companies and credit institutions, only if the cargo is bought at or below the price cap.

Because the world's key shipping and insurance companies are based in G7 countries, the cap could make it difficult for Moscow to sell its oil for a higher price.

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Russia, the world's second-largest oil exporter, said on Sunday it would not accept the cap or sell oil that is subject to it, even if it has to cut production.

Selling oil and gas to Europe has been one of the main sources of Russian foreign currency earnings since Soviet geologists found oil and gas in the swamps of Siberia in the decades after the Second World War.

A source told Reuters that a decree was being prepared to prohibit Russian companies and traders from interacting with countries and companies guided by the cap.

In essence, such a decree would ban the export of oil and petroleum products to countries and companies that apply it.

EU leaders agree to ban 90% of Russian oil - video

But with the price cap set at $60 per barrel, not much below the $67 level at which it closed on Friday, the EU and G7 countries expect Russia will still have an incentive to continue selling oil at that price, while accepting smaller profits.

The level of the cap is to be reviewed by the EU and the G7 every two months, with the first such review in mid-January.

"This review should take into account … the effectiveness of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments," the European Commission said.

The cap on crude will be followed by a similar measure affecting Russian petroleum products, which will come into force on February 5, although the level of that cap has not yet been determined.