Non-G7 nations will benefit without enforcing Russian oil price cap: US Treasury
The G7’s planned implementation of a Russian oil price cap will not be global, but will benefit many countries outside the group with or without joining the program by allowing them to buy cheaper Russian barrels, while reducing Moscow’s oil revenue, senior US Treasury Department officials said. said September 9.
Treasury Department Assistant Secretary for Economic Policy Ben Harris said on a call with reporters that not all crude-importing countries would be forced to formally join the price cap circle, but that countries who chose not to join could still use the G7 price cap. as a very effective negotiation tool to negotiate supply and purchase agreements with Russia at a very advantageous price.
Since the US, EU and others are already reducing their imports of Russian oil, they will not effectively benefit from the price cap. Instead, low-income countries could buy Russian oil at a very cheap price, according to Harris.
“Whatever options countries choose, price caps help us achieve our goals by putting downward pressure on the cost of Russian oil exports,” Harris said.
“Ultimately, we believe the price cap would achieve our goal of significantly harming Russia’s main source of revenue,” he added.
Harris also stressed that the oil price cap “should not be viewed as a global cap on Russian oil.”
“It’s more accurate to describe this as a condition under which G7 services must be used to trade Russian oil,” Harris said.
He added that the oil price cap would be effective due to “the breadth of the global reach of G7 services, so wherever G7 services present and trade Russian oil, the price cap will apply.” .
During the call, Treasury Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg said the scope of the oil price cap was significant because G7 countries provide an overwhelming majority of payments. and global oil trade finance services.
The G7 countries agreed on September 2 to finalize and “urgently” implement a price cap on Russian oil imports as part of efforts to hit Moscow’s vital oil revenue and ability to finance the war. war against Ukraine.
The finance ministers of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States said they “commit to work urgently to finalize and the implementation” of the ban on the maritime transport of crude oil and petroleum products of Russian origin in the world, unless the oil is purchased at or below a ceiling price.
No details on the price cap level or timeline were given by G7 ministers, who said they aimed to align the cap’s implementation with the timeline of measures in the EU’s sixth sanctions package. EU, which bans most Russian oil imports by early 2023.
EU sanctions on Russia-related services such as tanker financing and insurance also come into effect on December 5.
“Coalition countries will meet in the coming weeks and come up with a price” for the price cap before the enforcement date in December, giving buyers of Russian oil enough time to be able to make plans and implement place compliance frameworks, Rosenberg said.
“The price is above the marginal costs of production for Russia, so there are clear economic incentives for Russia to continue producing oil and selling it. We’re going to put a process in place,” Rosenberg said.
Once decided, the G7 coalition will provide “continuous information, including technical advice to market participants”, she added.
The oil price cap policy will be applied to shipments of Russian petroleum and refined products, regardless of the number of times the shipments moved from ship to ship or were transhipped from an original buyer to another as long as the cargoes are on the water, Rosenberg said. .
It is still possible for countries to work entirely outside the oil price cap, using services outside the G7 price cap coalition, but it could be “economically difficult” to do so, he said. -she adds.
Russian crude oil trade in Asia
Commodity managers and sweet crude traders at several Southeast Asian refiners applauded Harris’ idea of taking advantage of the G7 price cap to trade a good deal on Russian oil.
“The flexibility is there and it is a relief that the United States does not want to force all Asian countries to officially join the price cap system, but this decision allows everyone to gain this bargaining power and this advantage. trade when it comes to Russian oil,” said a crude and condensate trader at a Southeast Asian refiner, who declined to be identified due to the sensitive nature of international diplomacy and commercial business relationships.
“I would assume that the US and the G7 would come up with a price cap level that would roughly cover Russia’s oil production costs…Russian crudes such as Urals and ESPO Blend are trading already at discounts of $20/bbl or more from benchmark prices and the price cap level could potentially set the new normal allowing buyers to ask for much bigger discounts,” said a commodity trader from another Southeast Asian refiner.
Several Southeast Asian refiners, including Indonesia’s Pertamina, had hinted that they were increasingly tempted to buy a few shipments of ESPO and Sokol crude as Indian refiners actively bought sour Russian crude. soft at great prices.
Among the most recent trade deals in the Russian Far East spot market, a shipment of Sokol crude loaded in September is set to be shipped to India, state-owned Bharat Petroleum Corp. Ltd., or BPCL, reportedly repaired a ship. lift 700,000 barrels for its Mumbai refinery. Once rare, shipments of Russian crude from the Far East to India have become a common feature in the market as South Korean and Japanese refiners continue to refrain from buying Russian crude.