Group of Seven (G7) finance ministers from the world's most developed economies have agreed to move forward with a long-discussed plan to strengthen the impact of sanctions imposed on Russia since Moscow's decision to invade Ukraine.

The proposals will be based on a “range of technical inputs and its level will be closely monitored and revisited as necessary”, according to the officials representing the G7 members — the US, UK, Canada, Germany, France, Italy and Japan.

They added that the measures will he aligned with the timeline of the European Union’s sixth sanctions package.

Price cap

The G7's plan was presented as a response to the fact that high prices in the energy sector have undermined the efficacy of the sanctions imposed on Russia.

The proposals aim to regulate services that enable the maritime transportation of Russian-origin oil and petroleum products globally, such as the insurance of tankers and their loads, as well as the chartering of vessels to carry such oil and products.

The provision of such services will only be allowed if the oil and products are purchased at or below a certain price to be determined by a broad coalition of countries adhering to and implementing the price cap, according to a statement from the finance ministers.

The price cap is specifically designed to reduce Russian revenues and the country’s ability to fund its war in Ukraine, while also limiting the impact of the war on global energy prices, the statement added.

“We welcome the decision of the European Union to explore with international partners ways to curb rising energy prices, including the feasibility of introducing temporary import price caps”, the ministers said.

“The measure has the potential to be particularly beneficial to all states in the proposed coalition, notably vulnerable low- and middle-income countries, suffering from high energy and food prices, aggravated by Russia’s war.

“We will also develop targeted mitigation mechanisms alongside our restrictive measures to ensure that the most vulnerable and impacted countries maintain access to energy markets including from Russia.”

Approvals needed

However, the ministers added that for the EU, “unanimity among the 27 EU Member States is required” to achieve approval of the price cap.

While most EU states have been unanimous in approving previous sanctions, Hungary has been a stumbling block, arguing that the sanctions against Russia are undermining member state economies.

Earlier in August, regulators in Hungary gave the green light to a $12.5 billion project with Russian state nuclear corporation RosAtom to build two nuclear reactions.

The approval came at at time when Russian military actions have been raising fears of a major accident at the Zaporizhya nuclear power plant in Ukraine.

In anticipation of the G7 decision, Russian President Vladimir Putin’s spokesperson Dmitry Peskov told reporters during a conference call earlier on Friday that Russia will stop selling oil to countries that support the proposed measure.

“Companies that impose a price cap will not be among the recipients of Russian oil,” Peskov said, echoing similar comments on Thursday by Deputy Prime Minister Alexander Novak.

“We simply will not cooperate with them on non-market principles,” Peskov said.

International oil markets have shrugged off the threat, with front month futures for the delivery of Brent crude moving marginally up to trade below $95 per barrel on the ICE Exchange in London.

The market has remained in so called backwardation, with more distant future deliveries priced significantly lower against the front month contract, thus indicating the market expects supplies to increase over time.

Pipeline gas to follow

Though the oil price cap measure has yet to be approved by member states, Ursula von der Leyen, president of the EU’s executive arm, the European Commission, backed the measures as a valid attempt to counter what she called manipulation of the continent's energy markets.

“I firmly believe that it is now time for a price cap on Russian pipeline gas to Europe,” von der Leyen told reporters on the sidelines of a meeting of German conservative lawmakers in the town of Murnau, Reuters reported.

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