Australia to back price cap on Russian oil

Australia will join the world’s biggest economies in putting a price cap on Russian oil in a bid to escalate financial pressure on Russian President Vladimir Putin while his army suffers a series of setbacks in eastern Ukraine.

The federal government will sign up to the cap when G7 nations led by the United States impose the controls later this year in the hope of keeping oil prices down without halting supplies.

Foreign Minister Penny Wong, pictured, and Treasurer Jim Chalmers said the Australian government would work with the G7 on the implementation of the cap.Credit:Alex Ellinghuasen

But the design of the cap is contentious and is unlikely to prevent countries such as India and China from buying Russian oil, although it could force Russia to offer a discount to its trading partners and therefore cut revenue for Putin and his government.

Australia already has a total ban on the import, purchase and transport of Russian oil, gas and coal under sanctions imposed after Putin ordered the invasion of Ukraine in February, suggesting its backing for the G7 price cap would have little impact on the market.

But the move offers support for Ukraine after Deputy Prime Minister Richard Marles signalled on Sunday he wanted to continue military aid for the country’s fight against the Russian army.

With sanctions on Russia likely to be a key issue for G20 nations at a leadership summit in Bali in November, the Australian decision adds to momentum for the oil price cap in the hope of getting other countries to join the effort.

The European Union and the United Kingdom have decided to ban their insurers from covering Russian oil shipments, making it too risky and expensive for shipping companies to transport the oil and raising concerns about global shortages and price hikes.

The G7 nations – the US, the UK, Japan, Italy, Germany, France and Canada – agreed earlier this month to an additional mechanism to exempt insurers from the ban when the price of the oil is below the proposed cap, seeing this as a way to keep the price low while still punishing Russia.

Ukrainian President Volodymyr Zelensky welcomed the G7 policy after he called for a cap in June as a way to reduce the cash flowing to Moscow from the surge in energy prices that followed the invasion.

Treasurer Jim Chalmers and Foreign Minister Penny Wong said the Australian government would work with the G7 on the implementation of the cap.

“We encourage other countries to join Australia and our partners in implementing the oil price cap,” they said in a statement on Monday night.

The cap will not come into force until December 5 and the G7 is yet to set the price that will apply, but experts predicted a heavy financial cost to Russia from the insurance ban and the cap.

“What matters most is that every major multinational business will be unwilling to finance, purchase, trade, ship and insure Russian oil,” wrote Yale School of Management professor Jeffrey Sonnenfeld and Yale Chief Executive Leadership Institute director of research Steven Tian in Foreign Policy two weeks ago.

“For example, 90 per cent of maritime insurance is based in the European Union or Britain and will soon shut out Russia.”

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