On 2 September 2022, the Group of Seven (G7) finance ministers released a statement that confirmed the future implementation of a price cap on Russian-origin crude oil and petroleum products (the Price Cap). Under the proposed measure, the provision of services related to the maritime transport of Russian-origin crude oil and petroleum products will be prohibited unless the products are purchased at or below a certain price (to be determined).
The Price Cap also has the support of the European Commission, although all 27 EU member states are yet to unanimously agree to the measures. On 20 September 2022, Australia announced its support for the Price Cap.
How will the Price Cap work in practice?
This Price Cap is intended to establish a basis for Russian-origin crude oil and petroleum products to be exported by sea under a capped price and (as now indicated by OFAC) will achieve the following three objectives: “(i) maintain a reliable supply of seaborne Russian oil to the global market; (ii) reduce upward pressure on energy prices; and (iii) reduce the revenues the Russian Federation earns from oil after its own war of choice in Ukraine has inflated global energy prices”.
If Russian-origin crude oil and petroleum products are purchased above the Price Cap price, then individuals and entities of the G7 countries (and those coalition countries who also sign up) will be prohibited from providing services in respect of the maritime transport of such products. The purchase is still permitted, just not the corresponding G7 services.
Whilst not currently confirmed, it is expected that the list of services will include technical assistance, brokering, insurance, reinsurance and financing. This will have a significant impact, particularly as it is estimated that 90 per cent of maritime insurance has a connection to the EU or United Kingdom.
From the OFAC guidance, it appears that the Price Cap will rely on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian-origin crude oil or petroleum products to demonstrate or confirm that the oil or petroleum products have been purchased at or below the Price Cap price.
Who will sign the Price Cap?
In the first instance, the Price Cap will be signed by the G7 countries: Canada France, Germany, Italy, Japan, the United Kingdom and the United States.
As mentioned, the remaining EU member states have also been invited to support the Price Cap whilst Australia has already announced its support.
When does the Price Cap come into force?
OFAC has confirmed that the Price Cap will take effect on 5 December 2022 for crude oil and 5 February 2023 for petroleum products. This is in coordination with the EU’s Russian oil embargo, which takes effect on the same dates.