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G7 to work to ‘develop a price cap’ on Russian oil: US official

G7 leaders have agreed to work on a price cap for Russian oil, a US official said on Tuesday, as part of efforts to cut the Kremlin’s revenues.

Group of Seven leaders will “task ministers to work urgently towards developing, consulting with third countries and the private sector in an effort to develop a price cap around oil”, the senior official told reporters.

The official announcement is expected to come in the final communique later as a three-day G7 summit in the Bavarian Alps draws to a close.

The United States has led the push for an oil price cap at the gathering of the club of rich nations — which also includes Britain, Canada, France, Germany, Italy and Japan.

The goal of the plan is to starve the Kremlin of its “main source of cash and force down the price of Russian oil”, US President Joe Biden’s national security advisor, Jake Sullivan, told reporters at the summit on Monday.

While the West has already imposed multiple layers of sanctions on Russia in response to Putin’s order to invade Ukraine in February, the targeting of the oil industry represents the highest economic stakes so far.

The idea is that consumer countries would effectively set a low price for Russian oil, while Moscow, needing the revenue, would have no choice but to accept.

The plan would also help bring down soaring energy costs, which have fuelled global inflation and fanned recession fears.

There are major questions, however, about unity among consumer countries and whether Russia really would cave in or instead might retaliate by cutting energy supplies to Europe.

Energy exports are Russia’s biggest revenue earner, while Western countries are among those most heavily dependent on imported oil and gas.

According to Sullivan, the main obstacle to the idea is not so much willingness to go ahead but sorting out the immensely complex logistical and technical aspects.

One way that allies could enforce the cap is by restricting Russian oil exporters’ access to financial services or insurance companies unless they can prove compliance with the lower price.

European Council President Charles Michel on Sunday told the summit that the bloc would discuss the proposal but that many hurdles remained.

He said the price cap would require existing sanctions against Moscow to be tweaked, which would need the backing of all 27 member states.