How would a G-7 price cap on Russian oil work?

The world’s seven-largest industrialized economies have floated the idea of a price cap on Russian oil to further squeeze the Kremlin’s ability to fund its onslaught in Ukraine and try to protect consumers amid surging energy prices.

The G-7’s pursuit of a price ceiling on Russian oil is not without its challenges, however, with energy analysts highly skeptical about the integrity of the proposal.

For its part, the Kremlin has warned any attempt to impose a price cap on Russian oil will cause more harm than good.

The bloc used to receive about 25% of its oil imports from Russia and it represented one of the most important buyers for the Kremlin. Stopping these oil purchases are an attempt to hurt Russia’s economy after the unprovoked invasion of Ukraine, but they are difficult to end overnight given how some EU countries are heavily dependent on Russian fossil fuels.

U.S. President Joe Biden presented the idea of an oil price cap to the rest of the G-7 leaders over the weekend of June 25 and 26 and his counterparts agreed to look at how to do it. The G-7 is comprised of the U.S., Canada, France, Germany, Italy, the U.K. and Japan.

German Chancellor Olaf Scholz said the idea was very ambitious and needed a “lot of work” before becoming reality.

A spokesperson for the European Commission, the executive arm of the EU, said in an email to CNBC Friday: “We share the G7 countries’ concerns about the burden of energy price increases and market instability, and how these aggravate inequalities nationally and internationally.”

“In this context, as tasked by the European Leaders, the Commission will continue our work on ways to curb rising energy prices, including assessing the feasibility of introducing temporary import price caps where appropriate,” the same spokesperson said, adding the discussions are treated as “a matter of urgency.”

Energy analysts have questioned exactly how the G-7 can impose a price ceiling for Russian oil, warning that the plan could backfire if key consumers are not involved, and time may be running out to make it workable.

“I’m one of those scratching my head,” Neil Atkinson, an independent oil analyst, told CNBC’s “Squawk Box Europe” on Thursday.

“Something like this could only work if you get all of the key producers and crucially all of the key consumers working together and then finding some way of enforcing whatever plan you come up with,” he added.

“And the reality is that the biggest consumers of Russian oil, or amongst the biggest consumers of Russian oil, are China and India.”

China and India have “benefitted enormously” from discounted Russian crude, Atkinson said. Russian oil…