The US says Russia’s oil price cap should reflect historical prices, and limit Putin’s profits

The Liberian-flagged Aframax tanker Suvorovsky Prospect discharges fuel oil from Russia at the Matanzas terminal, in Matanzas, Cuba, July 16, 2022. REUTERS/Alexandre Meneghini/File Photo

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SINGAPORE/WASHINGTON (Reuters) – The maximum price G7 countries want to impose on Russian oil to punish Moscow should be at a fair market value minus any risk premium from its invasion of Ukraine, a U.S. Treasury official said. to reporters on Friday.

The Group of Seven is trying to find ways to reduce Russia’s lucrative oil export revenue in the wake of its invasion of Ukraine in February. Several different countries have banned imports of Russian crude oil and fuel, but Moscow has been able to preserve its revenue by increasing crude sales to Asia, particularly China and India.

The price cap level is unclear, and US and EU officials have not specified a numerical range. However, extrapolation from recent US guidance suggests it could be set at around $60 a barrel.

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Elizabeth Rosenberg, the US Treasury’s assistant secretary for terrorism financing and financial crime, said the price should be set above the marginal cost of Russian oil production taking into account historical prices.

“There are several key data points that we are studying and how prices should ultimately be set, and that includes the marginal cost of Russian oil production,” Rosenberg told a news conference for media in Asia.

“The maximum price … must be in line with or consistent with historical prices accepted by the Russian market.”

The G7 price cap plan agreed last week to call on participating countries to refuse insurance, financing, brokerage and other services for oil shipments whose price is above the ceiling for crude oil prices and two oil products that have not yet been determined. Read more

That could indicate a potential maximum of $60 a barrel, experts say, as Russia’s Urals crude, based on Brent crude futures, sold for $50 to $70 a barrel in 2019. Russia exports nearly 8 million barrels of oil. crude and fuel per day, making it the world’s largest oil exporter.

Russian government documents set a marginal crude production cost of $44 a barrel, although some Western officials believe it may be somewhat lower.

U.S. Treasury Secretary Janet Yellen and other officials in the Biden administration have traveled to oil-consuming nations to promote a mechanism that seeks to reduce revenue from Russian oil exports, the lifeblood of the war machine, without reducing the volume of Russian shipments to global markets.

The strength of any price ceiling could be reflected in the participation of China and India, which have ramped up purchases of discounted Russian crude as others have banned Russian barrels.

Deputy Treasury Secretary Wali Ademo told Yahoo! News that India has agreed to continue talks on accession, and Washington hopes China will consider this as well. Read more

Russian President Vladimir Putin has said that Moscow will stop shipments to countries that impose price ceilings. Read more

The Brookings Institution said there was “a lot of justified skepticism” about the plan, noting that it was unclear whether China would cooperate and that Russia could still refuse to deal with expert oil at a lower price.

Rosenberg said the G7 nations – Britain, Canada, France, Germany, Italy, Japan and the United States – will work together in the coming weeks to determine the cap rate and other key execution details.

It said providers would not have to monitor compliance with price caps themselves, but could rely on testimonials from buyers and sellers, leaving enforcement to the participating jurisdictions.

A European official said G7 members had not started formal discussions on the price cap, although officials had “ideas” about what was possible.

“The idea is that you still incentivize Russian oil producers to export by guaranteeing a price commensurate with their production cost with little incentive,” the official said.

Putin said that Russia is conducting a “special military operation” in Ukraine to protect his country’s security against the expansion of the Western military alliance NATO. Read more

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Additional reporting by Florence Tan in Singapore, David Lauder, Timothy Gardner, Andrea Shalal and Richa Naidoo in Washington; Writing by Timothy Gardner and David Lauder; Editing by David Gavin, Heather Timmons, Christian Schmolinger, Tom Hogg and Margarita Choi

Our criteria: Thomson Reuters Trust Principles.

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