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G7 countries are looking for a way to limit the rise in oil prices

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Gathered in Germany, the heads of state and government of the G7 spent three days focusing on one question: how to ensure that they have enough energy while depriving Russia of a good share of the income from its oil ? At the end of their conversations, in the leafy setting of Elmau Castle in the Bavarian Alps, they still have no solutions. But they have launched technical discussions based on an American proposal which would impose a maximum purchase price for Russian oil.

“The US proposal is a good idea,” said Emmanuel Macron during the final press conference of the summit. “But the difficulty is technical. You can’t push a button and do it…” he acknowledged.

By preventing Russia from selling its oil above a certain price, the aim is to prevent it from reaping the benefits of the crisis it has caused and from financing its war. It is also a question of controlling the inflation which affects the developed countries, and “which is not due to an overheating of our economies, but to a tax imposed from outside by the rise in the price of energy”explained the French president.

A “price cap” on Russian oil

The American proposal consists in creating a cap on the purchase price (or “price cap”). On paper the idea is simple. But the realization is more complicated. Because how to convince the Indians, for example, not to buy any more Russian oil, whereas today they have a big advantage to do it? They benefit, in fact, from a discount of around 20% from Russia, which is having trouble selling its production and is therefore offering them a favorable purchase price.

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The American proposal presupposes relying on services for sale: certification of oil tankers and insurance for these cargoes. Many of these services are based in Europe. It would therefore be possible to create an obligation not to allow transactions beyond a certain purchase price.

But even the American side recognizes the complexity: “It’s not something we can pull out of our drawers as if it were a tried and tested method…it’s a new concept,” recognized, in Elmau, the principal diplomatic adviser of the American president, Jake Sullivan.

Discuss with producing countries

The idea nevertheless appears in the conclusions of this G7 summit, but in a broader form. It is “ask ministers to work urgently on the development of an oil price cap, consulting third countries and the private sector”.

The Europeans, and France in particular, have insisted that this mechanism have a broader ambition, and not be based on sanctions, but on a discussion with the producing countries, so as to limit the increase in the whole oil markets and also the surge in the price of gas. That supposes “to coordinate between buyer countries and discuss with producer countries”explained Emmanuel Macron.

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It is above all a question of asking the producing countries to put more crude on the market, temporarily, even if the G7 press release specifies that the ambition remains to meet the Paris agreements and carbon neutrality in 2050.

Some producers make superprofits

During the summit, Emmanuel Macron joined the President of the United Arab Emirates, Mohammed Ben Zayed Al Nahyan, but the latter did not give him much hope, saying that his country was already at the maximum of its production capacities… France also raised the possibility of lifting the embargo on Iranian and Venezuelan oil, as another avenue for lowering prices.

During this same press conference, Emmanuel Macron also recalled that the rise in crude prices allows producers to currently make “surpluses” and he launched into a charge against speculation. As a way of warning that, if producers and traders do not cooperate to limit the surge in prices, states could act with taxes.

The idea is not entirely new. It has already been implemented in Italy, and Belgium is preparing to follow the same example. France, for the moment, has given up on it, but the presidential statement suggests that it could change its tune.

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