The Group of Seven's (G-7) plan to install a price cap on Russian crude oil isn't a "panacea" for international energy markets and may worsen conditions, according to experts.
G-7 finance ministers recently agreed to institute a price cap on Russian oil in an effort to cripple the country's revenues that are helping finance its war in Ukraine. Leaders from the United States, Canada, France, Germany, the UK, Italy, and Japan believe this will achieve two objectives: negatively affect Russia and keep crude flows intact to prevent massive price surges.
Officials were short on details, such as the per-barrel price cap, which they noted would be determined "on a range of technical inputs" at a later date.
But while G-7 members have already prohibited or reduced Russian petroleum imports, it will be challenging to get other nations on board, particularly China and India.
"You need an outreach because we don’t want this measure to be only a Western measure," he said. "It should not be a Western measure against Russia; it should be a global measure against war."
“Now, what will the proposal mean? We will look at it very carefully,” Puri said, noting that India doesn't have "a moral duty" to reject Russian energy.
Will This Plan Work?The reaction to the proposal has been mixed.
The Washington Post Editorial Board called it a "promising plan" to stop Russia from "swimming in cash."
"The prospect of disrupting Russia’s cash flow without disrupting global energy markets is worth the effort," it wrote.
Phil Flynn, a senior account executive at The Price Futures Group and author of The Energy Report, doubts that this will succeed because history has shown that price caps have never worked.
"They're going to withhold sale, and that's going to tighten the supplies even more, and prices will go up," he told The Epoch Times. "I don't think it's going to solve the problem. In fact, I think it could have the opposite impact in reduced supply."
Flynn, echoing the sentiment of G-7 leaders, thinks these "new sanctions under a different name" will succeed only if the entire world gets on board with it.
"And right now, that doesn't look like that's likely. So this is probably an exercise in futility," he said.
Russian Energy Minister Nikolay Shulginov revealed to reporters on the sidelines of the Eastern Economic Forum in Russia’s Far East that Moscow will expand shipments of crude to Asia. He noted that the West's actions would possibly boost prices.
"Any actions to impose a price cap will lead to deficit on [the initiating countries'] own markets and will increase price volatility," Shulginov said.
Officials acknowledged that there would be retaliatory measures, although they didn't provide details.
Irina Tsukerman, a national security and geopolitical analyst at security strategy and reputational management firm Scarab Rising, noted that price caps on Russian crude are "not a panacea and not a substitute for drilling energy from the United States."
"But there could be advantages as long as the G-7 does not depend on this single idea to crush the Russian economy," she told The Epoch Times. "Oil is central to Russia's economy, particularly now, and Russia has even moved to explore sanctions circumvention through Iranian channels due to loss of revenue damaging to its economy in the long run.
“In recent years, oil has accounted for as much as 30 to 40 percent of the state budget. With the sanctions reducing the non-oil revenue by as much as 15 percent, the importance of oil has risen. At the same time, the sanctions on oil have not done much damage to Russia's oil revenue, in part because Russia has compensated from increased sales to non-Western countries such as China, India, Iran, and others. It's worth noting that Russia has been already forced to discount its oil sales by as much as 20 percent, which means the relative value has fallen dramatically.”
Tsukerman noted that several nations, such as India, have already fulfilled their demand. As a result, it's unlikely that these countries will perpetually buy additional crude, even at discounted prices.
“Russia has to rely on fewer countries,” she said.
Until the energy crisis is resolved, Tsukerman said the world will be at the mercy of the Organization of the Petroleum Exporting Countries (OPEC) and its oil-producing allies, OPEC+.
In the meantime, Europe is "[paying] a high price to achieve sufficient gas supply ahead of the winter," according to Carsten Brzeski, the global head of macroeconomics at ING.
October West Texas Intermediate crude futures were flat at less than $87 per barrel on the New York Mercantile Exchange. Brent, the international benchmark for oil prices, also saw the November contract flat at just less than $93 per barrel on London's ICE Futures exchange. October natural gas futures tanked by nearly 7 percent, to about $8.18 per million British thermal units.