The United States and its allies are discussing ways to limit the selling price of Russian oil to between $40 and $60 a barrel, according to people familiar with the matter.
Allies have been exploring various ways to limit Russia’s oil revenue while downplaying the impact on their own economies, this in discussions that began in the run-up to the Group of Seven summit.
At the summit in Germany on June 28, the leaders agreed to explore options to limit prices by eliminating necessary insurance and transportation services to move Russian petroleum products unless that oil is bought below the agreed price.
A more specific threshold will depend on market conditions when a cap is agreed upon and these could change significantly. Before Monday’s drop in oil prices, Russian crude was likely trading around $80 a barrel. However, information about transactions in the barrels of the nation led by Vladimir Putin has become less well known after the invasion of Ukraine.
The Biden administration believes a $40 cap is too low, two of the people said. The goal is to cut Moscow’s income from its war in Ukraine, but the risk is that poorly executed measures an increase in oil prices.
The US administration has so far shied away from deploying secondary extraterritorial sanctions to enforce restrictions on Russia, and such moves are often viewed with concern among some European allies. His use of an oil price cap is probably a measure of last resortaccording to one of the people.
Biden administration officials are having several meetings a week about the price cap, trying to make it a reality, according to one official. The effort will intensify in the coming weeks, he noted.
Spokesmen for the White House National Security Council did not immediately comment on the discussions.
While oil ceilings received a mention in the G-7 communiqué, there is a lot of skepticism that an agreement will be reached in the near future, as the idea still needs to be developed and there are a number of obstacles. However, discussions continue to try to finalize a concrete proposal.
The ‘buts’ of the proposal
One problem is that the mechanism would require the European Union introduce exemptions to the sanctions the bloc adopted in early June when it agreed to an outright ban on such services after overcoming weeks of intense negotiations between member states.
EU sanctions require unanimity and the support of all 27 member states. The UK is also set to introduce restrictions on its insurers and service providers, one of the people familiar said.
However, the US is concerned that the European ban as it stands, which in the case of the EU starts to come into force at the end of the year, could help oil prices skyrocket further, up to $185 a barrel according to some estimates, which could potentially lead to a global recession, the people said.
Together with the UK, the EU covers most of the world insurance market and Russia would have a hard time moving its product no access to those services.
The G-7 countries and the EU have already agreed to phase out imports of Russian oil, but while doing so, Moscow sought to increase exports to other buyers at a reduced price. Russia is still receiving more than 600 million dollars a day for the sale of oil, even though several nations avoid buying supplies from them.