G7 commits to phasing out Russian oil imports

The G7 group of major economies intend to reduce reliance on oil imports from Russia "in a timely and orderly fashion," signaling support for the EU's approach of gradual phase-out of such supplies instead of an outright ban like those imposed by the US and Canada.

But G7 leaders, in a statement issued following a virtual meeting with Ukrainian president Volodymyr Zelenskiy, did not explicitly refer to efforts to reduce or impose sanctions against Russia's exports of natural gas.

"We commit to phase out our dependency on Russian energy, including by phasing out or banning the import of Russian oil," the G7 leaders said. The gradual approach is designed to give member countries time to find alternative supplies of oil and avoid hitting consumers with significant price hikes.

The G7 members also pledged to accelerate the energy transition away from fossil fuels.

The European Commission has proposed an "orderly" phasing out of EU oil imports from Russia by the end of this year, but the proposal faces some resistance and demands for carve-outs from EU members Hungary, Slovakia and the Czech Republic.

Imposing sanctions on Russia's natural gas exports could be even more difficult politically, given Russia's large share of Europe's natural gas market.

"We are taking action together on Putin's main export source, which is oil — and gas to a lesser extent — because that helps to fund his war machine," a senior US official said. "But we want to do that while maintaining global energy supplies at a steady level."

Transitioning away from the Russian oil and gas is not an easy task, the official acknowledged. "That is why we have released over 200mn bl from strategic (oil) reserves. We are encouraging domestic producers to respond to price signals and get together with Wall Street and see this as a moment for securing America's energy independence."

But Moscow may be preparing to preemptively cut off deliveries to the EU and other "unfriendly" states that have supported Ukraine militarily and economically since Russia invaded its neighbor in February. A decree signed by Russian president Vladimir Putin on 3 May calls for retaliatory economic measures, including a ban on the export of unspecified "raw materials or products" to entities in those countries.

The US Treasury Department today imposed sanctions against senior executives and board members of Gazprombank, which previously was spared from more severe measures affecting other Russian banks because of its role in processing Russia's oil and gas exports. Gazprombank itself is not under full blocking sanctions.

"What we are signaling is that Gazprombank is not a safe haven, and so we are sanctioning some of their top business executives — they are the people who sit at the top of the organization — to create a chilling effect," the senior US official said.

Sanctions removal pathway

President Joe Biden's administration is now explicitly tying potential relief of sanctions against Russia to the outcome of the Ukrainian-Russian negotiations on a peace settlement.

"We would never do a deal on sanctions rollback without Ukraine at the head of the table," the US official said. "If we get to the point at which this is being discussed, it really would depend on the overall shape and scope of the diplomatic agreement that is being negotiated."

Today's G7 statement took note of Zelenskiy's description of Kyiv's ultimate war objective — "to ensure full withdrawal of Russia's military forces and equipment from the entire territory of Ukraine." The description indicates that Kyiv is no longer willing to defer discussion on the future of the so-called Luhansk and Donetsk "people's republics," which Moscow has recognized as independent, or Crimea, which was annexed in 2014.

The G7 leaders also pledged to work with Ukraine to provide "security mechanisms for a viable post-war peace settlement."

Discussion of security guarantees and the ultimate status of eastern Ukraine have featured in Ukrainian-Russian negotiations since the war started, but talks have been in hiatus since the Russian retreat from northeast Ukraine last month and the discovery of atrocities allegedly committed by the Russian forces in areas they held in February-March.

The G7 leaders indicated that they expect the war in Ukraine to last a long time and pledged to continue funding and arming Ukraine's resistance to the Russian invasion through provision of weaponry, ammunition and financial aid to keep Ukraine afloat. A large chunk of the country's industrial and export infrastructure has been destroyed or captured by the Russian forces.

The statement is timed to coincide with the 77th anniversary of the end of World War II in Europe, a holiday celebrated in Russia tomorrow. After 77 years, "President Putin and his regime now chose to invade Ukraine in an unprovoked war of aggression against a sovereign country," the G7 leaders said. "His actions bring shame on Russia and the historic sacrifices of its people."

By Haik Gugarats