Today the finance ministers of the G7 countries are discussing a cap on the price of Russian oil. EU Commission President Ursula von der Leyen is in favor of this, including gas. An analysis of how this can work in practice. And what consequences this has for coexistence in the world.

Good hosts are open to suggestions from their most important visitors. This also applies to Germany as the host of the G7: When Chancellor Olaf Scholz received the heads of government of the G7 at Schloss Elmau in June, US President Joe Biden approached him with an issue – a price cap for Russian oil. The other five states waved the idea off, but Scholz was open-minded. Today Germany is hosting the G7 again, this time the finance ministers are meeting. And presumably Christian Lindner (FDP) will sponsor the project – probably to the delight of his US counterpart Janet Yellen.

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Basically, the ideas go like this: The G7 want to force Russia to only sell oil up to a certain maximum price – including to third countries such as India or China. This would kill two birds with one stone for the G7 countries: the price of oil would fall and Russia would earn less money to finance the Ukraine war, for example. This could succeed by making the transports practically impossible if the upper limit is not adhered to. Because Russia needs both shipowners who transport their oil and insurers who financially secure these transports.

On Thursday evening, EU Commission President Ursula von der Leyen said in Maybrit Illner’s ZDF talk show: “I support the cap on Russian gas here in Europe, which can only flow to Europe because it is bound in the pipeline, but also an international, global cap on Russian oil that can be sold via ships worldwide.” What exactly she meant by the gas price brake remained open. After all, the Russian gas is needed in Europe, so the Russians can also take a corresponding market price.

With regard to a global oil price cap, according to Ursula von der Leyen, in the time since the Elmau meeting, the G7 have convinced other countries to say: “We will not pay more than this specific amount for Russian oil. And thus also to put pressure on Putin and to ensure that he can no longer fill his war chest.” When asked, however, von der Leyen admitted that countries like China will probably not participate: “Not everyone is on board. But those who try to undermine this price will need ships and insurance.” Both items are largely in the hands of the countries involved in the project, von der Leyen continued.

The EU and the USA want to use the power of the strongest to impose a maximum price for Russian oil on the world through the G7. The goal is not only morally right from the Ukrainian point of view: it harms the aggressor and reduces his income. But the price is high and the doubts as to whether this project will ultimately do more harm than good are even greater.

Firstly, it is questionable whether this oil embargo can be enforced at all: Russia has had problems finding buyers for its oil since the beginning of the war in Ukraine. But the tankers seem to keep finding buyers despite the high political pressure. However, they have to sail “black” across the world’s oceans, more and more often without knowing their destination port.

The non-governmental organization Crea has proven this through the complex routes of the tankers. This makes the journeys more expensive. In addition, the Russians find it difficult to even find shipowners who transport their oil. The ship insurers, mostly based in Europe, will also carefully consider whether they want to break the G7 sanctions. But there will always be gaps where embargoes and upper limits of the EU and G7 are broken – and the world will know about it. That is why the goal of Russia earning significantly less from oil and gas is still being met. But political damage to institutions could remain.

This is also reflected in other sanctions such as the exclusion of Russian banks from the Swift payment system. The West wanted to severely weaken Putin’s regime. However, the system is full of holes like Swiss cheese: Gazprombank was spared, so that energy suppliers from Russia can be paid for by Western countries.

Consistent action sees things differently and ends with the power of the factual, which shows that the power of the EU and even the G7 is limited. For example, Chinese banks have set up subsidiaries in Russia and are trading without Swift. Thirdly, research by the media repeatedly uncovers loopholes. All of this does not do the credibility of Western institutions any good.

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Apart from the fact that a comprehensive, consistent oil price cap is difficult to implement, there is political damage. Countries like China will have reasons not to support the G7 in this project. People don’t like to be dictated to by the West. Alienation, or at least awkward discussion, would be the likely result.

This was already evident in the discussions within the EU about the oil embargo that will come into force in Europe from December. In order to reach an agreement, several exceptions were made: The embargo initially only applies to Russian crude oil. The import stop for other oil products will not follow until February 2023 – a year after Russia invaded Ukraine. In addition, oil may continue to flow through pipelines for EU countries that can well justify an exemption, for example because they cannot procure alternatives due to their geographical location.

With every intervention by the big, rich countries, the consequences for other countries – in the EU and the rest of the world – should be carefully considered. Take China, for example, which would be an important alternative for Russia as a buyer country. For example, an uncoordinated oil cap is likely to further worsen the West’s relationship with China. It could be similar for India and other countries.

In short: A global upper limit for Russian oil would not be fully enforceable. There will be gaps, exceptions, compromises – and trouble with the states concerned. The G7 and the EU will have to live with that if they follow up their announcements with action. But it would probably make it more difficult for Russia to get rid of its oil and depress its profits. And how necessary that is can be seen from a simple number: 42 billion euros. That’s how much the Russian oil and gas company Gazprom earned in the first half of the year – a record for the group and more than it had earned in all of 2021.

The article “Von der Leyen makes an announcement to Putin – the consequences would be serious” comes from WirtschaftsKurier.