January 31, 2023

Filipino Guardian

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US says G7 should soon unveil price cap on Russian oil and adjust it regularly

Barrels for storing oil | SHARE PICTURE | Oil barrel photo created by jannoon028 – www.freepik.com

WASHINGTON — The Group of Seven Nations should soon announce the price cap on Russian oil exports, and the coalition is likely to adjust the level a few times a year rather than monthly, a senior US Treasury Department official said Tuesday.

The G7, including the United States, along with the EU and Australia, are due to introduce the price cap on Russian sea-going oil exports on December 5 as part of sanctions aimed at punishing Moscow for its invasion of Ukraine.

The goal of the unprecedented price cap mechanism is to reduce Russia’s oil revenues to fund its war machine while maintaining the flow of oil to global markets to prevent price spikes. Limitation on exports of Russian oil products is scheduled to begin on February 5.

The Treasury official told reporters the European Union is consulting with members on the price cap. “We hope that they will complete this consultation relatively soon and put us in a position where our entire coalition can announce a price,” the official said.

A decision on the level of the price cap could be made as early as Wednesday or Thursday after a meeting of EU ambassadors, a source familiar with the discussion said.

The G7 price cap would allow companies to offer coalition members services such as insurance, shipping and financing for Russian oil imports as long as purchases of that oil are below the price cap.

On Tuesday, the Treasury Department issued guidelines outlining how U.S. companies can provide such services without penalties provided the shipments they deliver are purchased below the price cap. The cap is intended to provide a relief valve for Western bans on Russian oil exports.

The coalition has agreed to set a fixed price for Russian oil instead of a floating rate discounted to an oil price index, sources said this month. The coalition feared that a floating price below an oil benchmark could allow Russian President Vladimir Putin to easily play the mechanism by reducing supply from Russia, one of the world’s largest oil exporters.

The official said Washington does not expect Russia to retaliate by withholding oil exports, as Putin has warned. Such a move could push up global oil prices but risks damaging Russia’s oil fields.

“We have no reason to believe they would do that because ultimately it is not in their interest,” the Treasury Department official said. As the EU and the United States banned Russian energy imports, major buyers including China and India have bought Russian oil at discounted prices.

“Any action they take to push prices up would affect their new customers, customers like India and China, which they (Russia) want to remain oil customers in the future,” the US official said.

The US official said the coalition does not expect to adjust the price cap on a weekly or monthly basis.

“Our goal is to review this regularly, which I think will hopefully be more of a quarterly or even semi-annual basis, as we want to provide reassurance to the market.” – Reuters