G7 likely to remove cap on Russian oil

According to Reuters, the Group of Seven (G7) and allies have shelved regular reviews of the Russian oil price cap scheme, people familiar with the matter told Reuters, even though most Russian crude is trading above the limit because of a rally in global crude prices.

Russian producers have found ways to sell oil using fewer Western ships and insurance services, making it difficult for the West to enforce the existing price cap because the companies facilitating the trade are outside of their remit.

The G7 countries along with the European Union and Australia imposed the price cap mechanism on Russian oil last December, followed by a cap on fuel from February this year. Initially, EU countries agreed to review the price cap every two months and to adjust it if necessary while the G7 would review as appropriate including implementation and adherence.

The G7 has not reviewed the cap since March 2023 and people familiar with G7 policies said the group had no immediate plans to look into adjusting the scheme.

There were some talks in June or July to do a review, or at least talk about it, but it never formally happened.

While some EU countries were keen for a review they said that there was little appetite from the United States and G7 members to make changes.

The sidelines of the upcoming UN General Assembly later this month could serve as an informal platform for talks on the cap

The mechanism allows third countries to buy Russian fuel using Western ship insurance if there is proof the purchase does not exceed price limits of US$60 per barrel for crude, US$45 per barrel of heavy fuel and US$100 per barrel of light fuel such as gasoline and diesel.

The idea was spearheaded by Washington to cut Moscow's revenues amid its war on Ukraine while avoiding market disruptions as a result of an EU ban on Russian oil.

Benchmark Brent oil futures are trading at their highest this year at above US$90 a barrel, raising the value of global crude, including Russian Urals.

Russia's finance ministry said the average price on its flagship crude grade Urals has recovered to US$74 a barrel on average in August - well above the US$60 a barrel cap - and up from an average US$56 in the first six months of the year.

Russia was forced to cut exports of oil and products immediately after the price cap imposition as it struggled to find enough ships to transport all of its output.

However, the country has managed to move most of its exports into the hands of domestic or non-Western foreign shippers, which do not require Western insurance coverage.

According to Reuters, at least 40 middlemen, including companies with no prior record of involvement in the business, handled at least half of Russia's overall crude and refined products exports between March and June.

While mostly dark fleet of tankers with murky ownership was being now used to transport Russian crude, Western ships were still involved in moving products since those were harder to police, an industry source said.

According to LSEG data, Russian crude has been trading above the cap since mid-July and is currently being traded at around US$67 a barrel at Russian crude terminals. Russian refined products such as fuel oil and diesel have also surpassed their caps.

A US Treasury official said this week the cap was still effective as it had helped cut Russian revenues. He said the group would stay nimble but added there was no plan for an immediate revision.

 

BRICS no rival to G7 and G20, says Lula

Brazilian President Luiz Inacio Lula da Silva said on Tuesday that the BRICS bloc of nations aims to organize the developing Global South and is not meant to rival the United States and the Group of Seven (G7) wealthy economies.

His comments point to a divergence of vision as leaders of the bloc - Brazil, Russia, India, China and South Africa - arrived in Johannesburg for a summit that will weigh expanding the group as some members push to forge it into a counterweight to the West.

Heightened global tensions provoked by the Ukraine war and Beijing's growing rivalry with the United States have pushed China and Russia - whose President Vladimir Putin will attend the meeting virtually - to seek to strengthen the BRICS bloc.

Their vision of an expanded BRICS capable of rivaling US and European global dominance has, however, been met with skepticism by some members. And the outcome of the debate over enlargement could determine the future of a bloc long criticized for a lack of cohesion.

"We do not want to be a counterpoint to the G7, G20 or the United States," Brazil's Lula said on Tuesday during a social media broadcast from Johannesburg. "We just want to organize ourselves."

Summit host South Africa welcomed China's Xi Jinping, the leading proponent of enlarging BRICS, for a state visit on Tuesday morning ahead of meetings with the grouping's other leaders planned for later in the day.

"I am confident that the upcoming summit will be an important milestone in the development of the BRICS mechanism," Xi said shortly after his arrival in South Africa.

South African President Cyril Ramaphosa said during a bilateral meeting with Xi that their two countries had similar views regarding expansion.

"We share your view, President Xi, that BRICS is a vitally important forum which plays an important role in the reform of global governance and in the promotion of multilateralism and cooperation throughout the world," he said.

Indian Prime Minister Narendra Modi is also attending the August 22 to 24 summit.

Putin, who is wanted under an international arrest warrant for alleged war crimes in Ukraine, will not travel to South Africa.

Beyond the enlargement question, boosting the use of member states' local currencies is also on the summit agenda. South African organizers, however, say there will be no discussions of a BRICS currency, an idea floated by Brazil earlier this year as an alternative to dollar-dependence.

BRICS remains a disparate group, ranging from China, the world's second biggest economy now grappling with a slowdown, to South Africa, an economic minnow facing a power crisis that's led to daily blackouts.

Russia is being hammered by sanctions over its war in Ukraine is keen to show the West it still has friends.

India, however, has increasingly reached out to the West, as has Brazil under its new leader.

Two members - India and China - have periodically clashed along their disputed border, adding to the challenge of decision-making in a group that relies on consensus.

Expansion has long been a goal of China, which hopes that broader membership will lend clout to a grouping already home to some 40% of the world's population and a quarter of global GDP.

The leaders will hold a mini-retreat and dinner on Tuesday evening where they are likely to discuss a framework and criteria for admitting new countries.

India, which is wary of Chinese dominance and has warned against rushing expansion, has positive intent and an open mind, Foreign Secretary Vinay Kwatra said on Monday.

Brazil, meanwhile, is concerned that expanding BRICS will dilute its influence, though Lula reiterated on Tuesday his desire to see neighbour Argentina join the bloc.

While a potential BRICS enlargement remains up in the air, the grouping's pledge to become a champion of the developing world and offer an alternative to a world order dominated by wealthy Western nations is already finding resonance.

Over 40 countries have expressed interest in joining BRICS, say South African officials. Of them, nearly two dozen have formally asked to be admitted, with some expected to send delegations to Johannesburg.