Failure to implement Russian oil price cap could push oil prices up -US official


A model of 3D-printed oil drums can be seen in front of the displayed stock chart going down in this image, taken Dec. 1, 2021. REUTERS/Dado Ruvic

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TOKYO, July 12 (Reuters) – Global oil prices could rise 40% to about $140 a barrel if a proposed price cap for Russian oil is not passed, along with sanctions waivers that would allow shipments below that price, a senior The US Treasury Secretary said Tuesday.

US Treasury Secretary Janet Yellen will discuss implementation of the US price cap proposal and global economic developments with Japan’s Treasury Secretary Shunichi Suzuki when they meet later on Tuesday, the official said.

The aim was to set the price at a level that would cover Russia’s marginal cost of production so that Moscow would be incentivized to continue exporting oil, but not high enough to fund the war on Ukraine, the official said.

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Japanese officials had expressed concern about the price cap that was too low, but had not outright dismissed a potential price range of $40 to $60 a barrel, the official said.

Yellen is using her maiden trip to the Indo-Pacific region as finance minister to build support for the proposed price cap for Russian oil and answer nagging questions about its effectiveness if India, China and others now buying cheap Russian oil won’t. participate.

The United States and other rich countries of the Group of Seven – Britain, Canada, Germany, France, Italy and Japan, along with the European Union – agreed in June to examine whether the cap would be imposed to limit revenues from Moscow and exhaust the war chest, but details are not yet known. is still being worked out. read more

As the European Union prepares to impose a phased embargo on Russian oil and ban maritime insurance for any tanker carrying Russian oil, a move expected to be matched by Britain, Yellen sees the cap as a way to keep the flow of oil flowing and avert a new price spike that could lead to a recession.

‘PRICE EXCEPTION’

Washington has proposed a “price exception” that would lift that ban on maritime insurance for orders below the agreed price to prevent millions of barrels of Russian oil production per day from being trapped by lack of insurance.

Treasury modeling showed that implementing the sanctions without the price exception could cause significant increases in the price of crude oil, potentially pushing it to about $140 a barrel from about $100 a barrel now, the Treasury official said.

However, there was some uncertainty about the estimates, particularly around assumptions about the elasticity of demand for oil, the official added.

EU, UK and US companies account for about 90% of global oil transport insurance and reinsurance, which would make it difficult for Russia to keep the flow of oil flowing once those sanctions came into effect at the end of this year, the government said. officer.

While some experts believe Russia, India and China could take out sovereign insurance, finance ministry officials did not share that view, the official said.

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Reporting by Andrea Shalal; Editing by Tom Hogue & Shri Navaratnam

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