G7 members will explore ways of curbing energy costs, including via possible caps on the price of oil and gas, as leaders vow to prevent Russia from profiting from its “war of aggression” against Ukraine and aim to curb inflationary pressures.
In a communiqué to be released today, the G7 will agree to develop solutions reducing Russia’s hydrocarbon revenues while minimising the negative impacts of high energy prices, especially on low and middle-income countries.
According to the document, seen by the Financial Times, leaders will explore the “feasibility” of introducing temporary price caps on imports of energy — a reference to a US-led push for a ceiling on the Russian oil price. A G7 official said earlier that capitals agreed it was a good idea, but a “great deal of work” remained to be done to make it a reality.
The G7 leaders said Russia’s war in Ukraine had exacerbated the economic impact of the Covid-19 pandemic, “dragging down growth, causing significant increases in commodity, energy and food prices and thereby pushing up inflation to levels not seen for decades”.
In their communiqué, the leaders agreed to “continue to impose severe and immediate economic costs on President Vladimir Putin’s regime” for its “unjustifiable war of aggression against Ukraine”.
The price cap idea is motivated by concern that Russia was benefiting from the surge in energy prices triggered by its war in Ukraine, despite the restrictions G7 member states have imposed on Russian energy imports.
In their communique, the leaders said they were “working to make sure Russia does not exploit its position as an energy producer to profit from its aggression at the expense of vulnerable countries”.
They also express concern about the burden of energy price increases and market instability, warning that they “aggravate inequalities nationally and internationally and threaten our shared prosperity”.
An EU official the agreement included an effort to explore caps on gas prices, and not just on oil, reflecting a push by Italian prime minister Mario Draghi, who has been advocating the idea for months.
The conclusions underscore the deep alarm among its members’ leaders about the toll the Ukraine war is taking on their economies. They are set to agree to have their ministers evaluate the feasibility of a price cap as a matter of urgency.
The G7 agreement pledges to consider a range of approaches on the oil price cap, including options for a “possible comprehensive prohibition of all services” which enable the transportation of Russian seaborne oil, unless it is priced at or below a cap which is to be determined in consultation with international partners.
Officials say the cap could be enforced via limits on the availability of European insurance for Russian oil shipments, as well as shipping services and US finance. But they caution that the scheme is highly complex and will need intensive technical work. It could face challenges in the EU where sanctions require the consent of all 27 member states.
“We are supportive of the basic structure,” said one G7 official about the ceiling on the Russian oil price. “But the details need to be hammered out.”
Another said that all G7 states agreed with the “basic idea that we have to reduce the sources of revenue for Russian oil”.
ExxonMobil chief executive Darren Woods told the Financial Times that trying to fix prices in the oil market would be a “complicated challenge”. “It’s not obvious to me how that mechanism would work,” he said. “In oil and gas, markets work very efficiently and effectively.”
Additional reporting by Tom Wilson in Brussels