G7’s recent decision to cap the price of Russian oil at $60 a barrel was made “to prevent Russia from profiting from its war of aggression against Ukraine.” Russia is the world’s second-biggest producer of crude oil, which is the reason behind the frenzied atmosphere. Oil prices shot up amid concerns that the price cap on Russian oil could cause major disruptions in the global supplies of crude oil.
The European Union imposed the price cap along with Britain, Australia, Canada, Japan, and the United States.
This price cap means that Russian crude oil sold for more than $60/barrel will not be permitted to be shipped using G7 and EU tankers, insurance companies, and credit institutions.
One of the reasons to put this cap was that as long as Russia refuses to stop its invasion of Ukraine, G7 wants to ensure that Russia can no longer reap the benefits of market monopoly in the crude oil sector. While Russia has, for decades, enjoyed profits from its global oil business, its recent acts have forced the G7 to take such severe measures. These measures, G7 hopes, will strip the Kremlin of essential resources and prevent further devastation caused by the ongoing war.
As a result of this price cap, Brent crude futures shot up by 13 cents, or 0.2%, and are now trading at $85.47/barrel. U.S. West Texas Intermediate (WTI) is the other crude future that experienced a price boost. Their price increased by 35 cents or 0.5% after this news.
Both of the above were, incidentally, on a gradual price decline.
However, the price cap created an unexpected atmosphere of uncertainty, giving such contracts room for a sudden price hike.
Even with some of the world’s most powerful countries teamed up against it, Russia is refusing to crack. It made a threat saying that it would not be accepting the price cap and would also stop exporting oil to the countries that adopt the price cap. This could result in even further disruptions and oil price increases.