Price cap

A price cap is a government-set ceiling on what buyers may pay for a commodity from a specific seller, intended to limit that seller's revenue without stopping the trade.

A price cap does not stop a commodity from being sold; it tries to stop the seller from earning above a set price for it. The cap set by the Group of Seven and allied countries on Russian seaborne crude oil worked this way: tankers and insurers based in those countries were barred from handling Russian oil sold above the cap price, but the oil itself could still be shipped and sold to any willing buyer.

A price cap depends on control over some part of the supply chain the seller needs, such as shipping insurance or vessel registration, to have any force; it cannot be enforced through the target country’s own ports or fleet. Sellers can respond by using ships and insurers outside the coalition that imposed the cap, which weakens its effect over time. See sanctions and commodities.