November 30, 2022

How the Price Cap on Russian Oil Will Work in Practice

By: Edward Fishman

The price cap on Russian oil is a policy backed by the G7 designed to curb Moscow’s oil revenues. Since Russia launched its invasion of Ukraine in February, the G7 has imposed a wide array of sanctions on Russia, freezing hundreds of billions of dollars in assets held by the Central Bank of Russia, severing many of the country’s largest banks from the global financial system, and cutting technology exports to its military-industrial complex. The sanctions have been impactful, throwing the Russian economy into a steep recession—the IMF projects Russia’s economy will contract 3.4 percent this year.

The United States will play the central role in the price cap. In some instances, that’s because global banks that rely on the US financial system will serve as intermediaries in transactions for Russian oil.

The price cap will change that. While the policy has often been described by some as a “buyers’ cartel,” that’s not quite right. The United States imposed an embargo on Russian oil imports back in March, and the rest of the G7 will largely end oil purchases from Russia by December 5. It would be impossible for the G7 to form a “buyers’ cartel” when they’re buying hardly any Russian oil.

Read the full article from Columbia SIPA.

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