The G7 meeting in Berlin on 2 September 2022

Observers analyzed that the price cap on Russian oil agreed upon by the G7 will likely cause more damage to Western investors after energy costs surge further.

G7 finance ministers met in Berlin to discuss imposing a price cap on Russian oil. The price caps for oil will come into effect on December 5, and for petroleum products on February 5, 2023

In response to the special operation in Ukraine, Western countries have rolled out a comprehensive sanctions campaign aimed, in particular, at Russian energy resources. That sent food and energy prices soaring, triggering record-high inflation in some countries.

Martin Hutchinson, a former merchant banker, business analyst, and economic historian said that the G7 oil price cap will likely cause the same damage as previous sanctions on Russia and will further worsen the energy crisis.

"So far sanctions on Russia have been hell for innocent Western investors, whose Russian assets have been frozen, but have had zero effect on Russia," Hutchinson said.

He also said that resulting price rises from the oil cap will end up compensating for volume declines, and that the G7 states have no control over the policies of heavy oil consumers like China and India, nor the major energy producers of the Middle East.

"The oil will flow to China and India, and Middle East oil at a higher price will flow to Europe and the US," he said. "It's fatuous."

The #G7 is still looking to put a price cap on #Russian oil despite the latter's several highlights that it will not comply and will continue to export to countries without a price ceiling.#Russia #Europe #US #Canada https://t.co/5LdMM1eps2
— Al Mayadeen English (@MayadeenEnglish) September 2, 2022

Hutchinson's use of the word "counterproductive" implied that Western efforts to economically penalize Russia have profited its foreign earnings instead by driving global oil prices far higher.

Marshall Auerback of the Levy Economics Institute of Bard College said that the G7's approach has marked an acute step back in global developments.

"A classic case of closing the barn door after the horse has bolted," Auerback told sources. "Owing to slowing economic growth and a downshift in oil’s intensity of use since around 2016, the secular trend in oil demand globally and in the US is far weaker than the International Energy Agency (IEA) and the US Energy Information Agency (EIA) and hence the market thinks."

Independent Institute Center for Peace & Liberty Director Ivan Eland, recalling how previous government attempts to artificially influence global markets failed disastrously, said "price controls never work."

Russia's oil export volumes have decreased since the commencement of the Ukraine war, although income increased by $700 million in June compared to May, according to the International Energy Agency in August, due to higher global oil prices.

The price ceiling, which Western leaders agreed on in principle in June, would limit the number of money refiners and merchants could pay for Russian oil. The measure is intended to reduce the Kremlin's earnings while keeping Russian oil on the market in order to avert a price upsurge.

Moscow has previously stated that it will not comply, instead exporting its crude to nations that are not subject to the quota.

Several unidentified G7 officials told Reuters that they doubted the ban would be successful if just the group's members - the United States, United Kingdom, Canada, France, Germany, Italy, and Japan - enforced it. They noted that in order for the measure to have a tangible impact on Russia's oil profits, the G7 would need the support of large oil consumers like China and India.

According to Reuters, such a situation is improbable. Furthermore, while about 95% of the world's tanker fleet now relies on London-brokered shipping insurance, the paper noted, citing unidentified analysts, that alternatives may be found.