US says G7 should soon unveil price cap level on Russian oil, adjust regularly

WASHINGTON – The Group of Seven nations should soon announce the price cap on Russian oil exports and the coalition will probably adjust the level a few times a year rather than monthly, a senior US Treasury official said on Tuesday.

The G7, including the United States, along with the EU and Australia are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5, as part of sanctions intended to punish Moscow for its invasion of Ukraine.

The aim of the unprecedented price cap mechanism is to reduce Russia’s petroleum revenues funding its war machine while maintaining flows of its oil to global markets to prevent price spikes. A cap on exports of Russian oil products is slated to begin on Feb. 5.

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

A decision on the price cap level could come as soon 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 provide services including insurance, shipping and financing on Russian oil imports to coalition members, so long as the purchase of that petroleum is under the price cap.

On Tuesday, Treasury issued guidelines spelling out how US companies can provide such services without penalties, provided shipments they serve are purchased below the price cap. The cap is meant to provide a relief valve to Western bans on Russian oil exports.

The coalition has agreed to set a fixed price on Russian oil rather than a floating rate, discounted to an oil price index, sources said this month. The coalition worried that a floating price pegged below an oil benchmark might enable Russian President Vladimir Putin to easily game 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 would happen. Such a move could send global oil prices higher, but risks damaging Russian oil fields.

“We have no reason to expect that they would do that because, ultimately, it’s not in their interest,” the Treasury official said. As the EU and the United States have put in place bans on Russian energy imports, big buyers including China and India have scooped up Russian oil at discounted prices.

“Any action they take to drive up prices would have an impact on their new customers, customers like India and China who they (Russia) want to remain oil customers going forward,” the US official said.

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

“Our goal is to revisit this on a regular basis, which from my standpoint, will look hopefully more like quarterly or even semi-annually because what we want to do is provide certainty to the marketplace.” – Reuters