Days before establishing an official price cap, the U.S. on Tuesday provided comprehensive rules on how to legally trade or finance Russian oil, according to a senior Treasury official who previewed the guidelines.
As part of the sanctions that the U.S. and other countries have implemented since Russia’s invasion of Ukraine, the G-7, the European Union, and Australia have teamed together to forbid the import of Russian oil. In order to keep Russian oil flowing onto the market and prevent a spike in prices that would harm consumers everywhere while also limiting Russia’s income, the countries have also agreed to create a price cap on it.
The recently issued U.K. rules and those from the United States are extremely similar. Unless Russian oil is purchased at or below the oil price cap set by the coalition of the G-7, EU, US, and Australia, the U.K. will prohibit nations from using its services to transport it. Most Russian oil is shipped and insured in the West via the United Kingdom. In order to avoid problems with compliance with various rules in various parts of the world, the United States wants to make providing services to trade Russian oil more seamless for buyers and participants.
Trading, financing, shipping, insurance, and customs brokering will all be covered and not regarded as a breach of sanctions as long as Russian oil is bought at or below the price cap. The Treasury official stated that the new regulations and the import ban for Russian oil go into effect on December 5.
According to the official, the price cap would be a specific price rather than a range. According to the source, it will likely be set every quarter or every two years. Although the actual price will be determined soon, it is anticipated to be higher than the cost of production and will take into account the state of the oil market as well as how much money Russia has previously made from oil sales. Varied parts of Russia have different oil production costs. The full-cost breakeven price for the production of Russian oil, according to the IMF, is roughly $30 to $40 per barrel.
As the EU talks among its 27 members and then with the U.S. and U.K., a price cap is anticipated in the upcoming days.
Wally Adeyemo, the deputy Treasury secretary, stated in September that the U.S. would implement the price cap by December 5, when a European six-sanction package that forbids the import of oil takes effect.
