US explains how Russian oil price cap would work
The US is planning to limit the price paid for Russian oil but at a level that would still be profitable enough for production to be continued, Treasury Secretary Janet Yellen said in an interview with the Wall Street Journal published on Wednesday.
“We have heard some concern about the possibility that Russia would simply stop producing. I would say that it doesn’t really make a lot of sense as a Russian response… We would expect to set the price cap at a level that would clearly be profitable for Russia to continue to produce,” Yellen was quoted as saying.
According to the official, the price-cap mechanism would require that any tanker carrying Russian oil only receive financing and insurance from US, UK and European Union institutions if the sales price of the oil is below the cap. According to Yellen, many countries would have no choice but to accept the price cap, given that a number of the globe’s major maritime insurance companies are based in either the EU or UK.
“It makes it easier if at least they put a price cap in place… But even if they don’t, this sanction will apply to Western banks and insurance companies that they’re going to be dealing with, and so they’re going to be affected by it. But it doesn't hurt them. It helps them,” Yellen stated.
Washington officials haven’t yet finalized the price for the cap, Yellen told reporters in Tokyo earlier this week.
She noted, however, that Russia had in the past based its budget on an oil price of around $40 per barrel. Meanwhile, the global benchmark Brent crude was trading at about $100 a barrel as of 15:45 GMT on Wednesday.
Yellen is currently in Asia on a trip aimed at garnering support for the price-cap mechanism, which proponents of the move hope will help curb Russia’s revenue from oil sales, and, consequently, limit its ability to finance the ongoing military operation in Ukraine, which the West condemns.
Yellen told the WSJ that she has already discussed the possibility of the cap during a virtual meeting with Chinese Vice Premier Liu He.
“They [the Chinese] listened and were prepared to have further discussions with us about it,” Yellen said.
Washington is eager to persuade China, as well as India, of the necessity of a ceiling on the price Russia can fetch for its oil. Both nations continue to import Russian oil and have recently increased their purchases to take advantage of the large discount offered by Moscow.
Yellen is expected to hold talks on the price cap with officials from Japan, India, Indonesia, South Korea and Saudi Arabia in the coming days, the WSJ reported, citing a senior Treasury official.
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