Washington has reportedly been forced to pursue more “loosely policed” market controls
President Joe Biden’s administration has reportedly been forced back to the drawing board on its plan to cap international prices for Russian oil, having failed to secure enough commitments to control how much Moscow is paid for the bulk of its crude exports.
The US and the European Union will likely have to settle for a “loosely policed” pricing cap, enforced by fewer buyers and at a higher price than envisioned, Bloomberg News reported on Wednesday, citing unidentified people familiar with the plans. The original goal was to drastically reduce Russia’s oil revenue – the latest effort to punish Moscow for its military offensive in Ukraine – by imposing a strict price lid to which a broad “buyer’s cartel” of nations would adhere.
Instead, only G7 nations and Australia have committed to honoring the price cap, Bloomberg said, attributing failure of the original plan to investor skepticism, volatile financial markets and efforts to tame inflation around the world. The cap level also might need to go higher than a previously targeted range of $40-$60 per barrel.
Biden’s administration has denied that its plan would fall short of throttling Russian oil revenue. “The White House and the administration are staying the course on implementing an effective, strong price cap on Russian oil in coordination with the G7 and other partners,” White House National Security Council spokeswoman Adrienne Watson told Bloomberg in a statement.
Russian officials have said the country won’t sell oil or other commodities under price caps or unprofitable market conditions. Nor will Moscow supply energy to nations that adopt trade policies contradicting the terms of their existing oil and natural gas contracts, Russian Deputy Prime Minister Aleksandr Novak said earlier this month. A cap on crude wouldn’t be viable because prices are driven by the global supply-demand balance, he added.
The G7 price cap is scheduled to go into force on December 5, along with an EU ban on imports of seaborne Russian crude. Reuters reported last week that after December 5, Russia would still be able to ship the vast majority of its oil exports at market prices because it would have ample access to tankers and other services. The outlet cited a US Treasury official as saying that between 80% and 90% of Russian oil would continue to flow to buyers outside the cap mechanism.
Russia would have access not only to its own oil tankers, but also to Chinese and Indian ships, Reuters added. Traders and insurance companies from Russia, Asia and the Middle East would provide the necessary transactional services. Brent crude, a leading international oil benchmark, is currently selling for around $95 per barrel.
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