Global oil prices rose on Monday as the G7 group of advanced industrial countries implemented a price cap on Russian crude oil.
The price of Brent crude, the leading oil price benchmark, rose by almost 2% to $87.25 a barrel as a price cap of $60 on Russian crude was introduced for all non-Western purchasers of Russian oil who make use of Western oil tankers or providers of maritime services.
"The G7 and EU Member States have taken a decision that will hit Russia's revenues even harder and reduce its ability to wage war in Ukraine," said Ursula von der Leyen, President of the European Commission, on Saturday – the day after the price cap was announced. "It will also help us to stabilise global energy prices, benefitting countries across the world who are currently confronted with high oil prices."
It is as yet unclear to what extent the price cap was the decisive factor in causing the rise in the price of oil. On Monday the EU also implemented a ban on seaborne imports of Russian oil, while on Sunday the OPEC+ group of oil-producing nations (which includes Russia) announced that it would not increase oil production until 2024.
China's recent decision to relax its stringent Covid restrictions – which have reduced both industrial and consumer demand for oil in recent years – is also likely to have played a significant contributing role.
The EU's price cap on Russian crude has been denounced across the international spectrum, with Ukraine, Russia, and even mainstream Western economic analysts criticising the idea.
In particular, Ukrainian President Volodymyr Zelenskyy has condemned the $60 price cap as "weak" and "quite comfortable for the budget of a terrorist state", and has expressed support for the Polish and the Baltic countries' desire for the price cap to be lowered to $30.
“The logic is obvious," Zelenskyy said on Saturday evening. "If the price limit for Russian oil is $60 instead of, for example, $30 – which Poland and the Baltic countries talked about – then the Russian budget will receive about $100 billion dollars a year."
Russia has also heavily criticised the plan, with Kremlin spokesman Dmitri Peskov claiming that Russia "will not recognise any [price] caps", and that its implementation "is a step towards destabilising global energy markets". Peskov further suggested that Russia could introduce retaliatory measures of its own. "A decision is being prepared [regarding Russia's response]," Peskov said.
In a recent analysis, The Economist described the price cap as akin to trying to "defy the law[s] of physics" and suggested that the EU's twin aims of not restricting global oil supply (so as not to increase prices) and preventing Russia from selling its oil (so as to limit its ability to finance its war in Ukraine) are "contradictory".
The analysis explains that with production limited to drive up demand and prices, "taking any oil off the market mechanically triggers higher prices."
The Economist further warned that although "prices could jump" as a result of the price cap's implementation, "a much worse scenario, where Russia voluntarily slashes its oil exports and prices get out of control, is also possible". It's authors fear that the price cap will meet considerable challenges upon implementation.