Beijing will be keeping a close watch on the G7’s efforts to cap the price of Russian oil because China is trying to do the same to Australian iron ore.
As the world’s biggest exporter of resources and energy, Australia has a vital interest in transparent and freely negotiated commodity markets. Its economy would be seriously jeopardised if consumers were successful in using their combined power to supress prices for specific commodities.
China accounts for 70% of global imports of iron ore and has long believed that its dominance of the market should give it greater influence over prices. The China Iron and Steel Association plans to have a central iron ore buying agency in place by the end of the year to stop individual steel mills from bidding up prices against each other.
The G7 plan would exploit the US’s and UK’s control of financial services to the shipping industry, particularly insurance, to prevent Russian oil from being loaded on tankers if its price exceeded a G7-imposed limit. Although the G7 accounts for only 30% of global oil imports, virtually all shipping insurance goes through the London markets.
Insurers would be forbidden from providing coverage for ships taking on Russian oil at higher prices. Two-thirds of Russian oil is shipped in tankers owned by companies based in the European Union, the UK or Norway, which increases the G7’s leverage.
The idea is that the price cap on Russian oil would apply not only to the oil purchases of G7 nations but to all Russian oil exports.
