On September 2, 2022, the G7 Finance Ministers issued a statement confirming their intention to implement a price cap with respect to Russian-origin crude oil and petroleum products in response to Russia’s continued invasion of Ukraine. The price cap would be designed to reduce Russian oil revenues and Russia’s ability to fund its war against Ukraine while also seeking to prevent a surge in global oil prices.

Specifically, the G7 agreed to finalize a “comprehensive prohibition of services” related to the transportation of seaborne Russian crude and petroleum products. Services, including financial services and shipping insurance, would only be permitted for purchases below the cap, which has yet to be set. The G7 anticipates that practical implementation of the price cap will be based on a recordkeeping and attestation framework to be adopted by industry, in an effort to limit possibilities for circumventing the price cap regime and minimize the administrative burden for market participants. The price cap would supplement, not replace, the existing European and US embargos on Russian oil.

The G7 emphasized the urgency of implementation, and acknowledged that, for the European Union (EU) to adopt the proposal, unanimity is required among its 27 members. The US Secretary of the Treasury (Treasury) Janet Yellen issued a separate statement, expressing support for the price cap effort. Prior to implementation, Treasury’s Office of Foreign Assets Control (OFAC) expects to publish preliminary guidance on the price cap’s implementation within the coming weeks, which will provide a high-level overview of the price cap, including how US persons can comply.

The success of the proposal depends on the readiness of big Russian oil importers to agree to abide by the scheme and whether the G7 governments can eliminate opportunities to circumvent the cap. Meanwhile, Russia has warned it will not sell to any country that participates in the price cap, setting off concerns that the price cap could have the effect of curtailing flows and lead to future spikes in global oil prices

Immediately following the G7 announcement, Gazprom apparently reversed its plan to resume gas flows to Europe through the Nord Stream 1 pipeline. Gas supplies to Europe via the northern routes from Russia, including Nord Stream 1 and through Ukraine, have reportedly fallen more than 90 percent over the last year.