A price cap on Russian oil aimed at penalizing Moscow’s war on Ukraine went into effect on Monday.
The cap, which is being imposed by the United States and other countries and is intended to prevent Russia from selling oil at more than $60 per barrel, works by prohibiting access to services such as insurance and trade finance for shipping Russian oil if it’s sold above the price cap.
The Group of Seven (G-7) is imposing the cap on Russian oil that is transported by sea along with the European Union and Australia. According to a Treasury Department fact sheet, the G-7 controls about 90 percent of the market for relevant insurance.
When Russia first launched its offensive into Ukraine, several countries, including the U.S., announced that they would stop purchasing Russian oil. However, not every country made such a pledge, and many barrels were diverted to countries such as China and India.
The cap is intended to discourage the global purchasing of Russian oil above the threshold of $60 per barrel.
The concept of the price cap was agreed to earlier this year, while the $60 figure was announced on Friday. Since the cap only has restrictions for seaborne oil, it’s not expected to apply to oil transported on land, including through pipelines.
The cap that took effect Monday contained prohibitions on certain services like insurance and trade financing.
A second measure that will be implemented in February is also expected to prevent sellers of oil above a price cap from having access to transport and other services from the G7, EU and Australian governments. The exact price cap on Russian oil that would prohibit those services has not been announced.
This story was updated at 3:33 p.m.
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