The measure can only work if there is a broader participation by other countries, the financial institution says.
In its oil market outlook, issued on Wednesday, the bank highlighted the associated risks. It wrote that the upside risks are dominated by supply issues, including the extent to which Russia’s exports are impacted by new trade measures.
The World Bank has stated that the planned Group of Seven (G7) proposal to put a maximum price cap on the imports of Russian oil may only succeed if significant emerging markets as well as developing nations join the program.
The bank emphasized the dangers in its oil market forecast, which was released on Wednesday. It stated that supply-related risks, such as the amount to which new trade restrictions have an effect on Russia’s exports, are the main sources of upside risks.
According to the report, “the proposed G7 oil price cap could affect the flow of oil from Russia, but it is an untested mechanism and would need the participation of large emerging markets and developing economies to achieve its objectives.”
“The proposed G7 oil price cap could affect the flow of oil from Russia, but it is an untested mechanism and would need the participation of large emerging markets and developing economies to achieve its objectives,” the report said.
It added that while significant disruption to Russia’s exports may occur in the short term as trade routes are disrupted, “market participants may find ways to circumvent the sanctions, as has often occurred with other sanction episodes.”
The Group of Seven economies – the US, Canada, France, Germany, Italy, the UK, and Japan – agreed last month to enforce a price ceiling on Russian oil in a bid to curb the country’s revenue from energy exports. The price limit hasn’t yet been decided, and the US is already quietly abandoning the plan.
According to the plan, banking, insurance and shipping firms will be banned from providing services to Russian companies that sell oil at a price above the set limit. December 5 also marks the deadline for the EU to ban all imports of Russian seaborne crude.
Moscow has said it will not export oil to countries participating in the price cap, RT reports.