20:13 06 Jul 2022

US and allies discuss limiting russian oil price to $40-50

The United States is discussing with its allies the limitation of the russian oil price to 40-50 dollars per barrel to limit the profits of the aggressor from energy sources and, meanwhile, continue their import.

Bloomberg writes about this with reference to sources familiar with this matter.

A more specific price threshold (price cap) will depend on market conditions at the time of the sanctions agreement. On Monday, russian oil was likely trading around the $80 per barrel mark, but information about russian oil transactions has become less public since the invasion of Ukraine.

The proposed price cap is based on the marginal cost of oil production in the russian federation and its oil prices before the February 24 invasion. At the same time, the Biden Administration considers the limit of $40 too low, the agency's interlocutors note.

In the US, there are worries that EU oil sanctions, which come into effect at the end of the year, could push oil prices even higher — by some estimates to $185 a barrel — and potentially lead to a global recession.

Price caps are necessary to reduce moscow's revenues from the war in Ukraine, but the risk is that poorly implemented measures will lead to a significant spike in oil prices. Biden administration officials are currently holding several meetings a week to make the plan a reality, and efforts will ramp up in the coming weeks.

Despite the G7's plan to consider capping oil prices, there is much skepticism that any agreement will be reached anytime soon.

To work, the idea of ​​price caps must create enough incentive for countries to participate. Oil importers will need access to lower prices and main services, such as the insurance necessary to transport the goods, and the threshold should be such that russia continues to export.

The United States is also considering a number of potential enforcement tools, including possible restrictions on shipping companies that transport oil at higher than set prices and sanctions against banks and financial institutions that facilitate sales at prices above any agreed threshold.

Read Rubryka's daily timeline of war: current news on Ukraine's defense against russia's aggression.

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