Russian Oil Price Cap: The US Treasury Department Thursday said Washington will make it more difficult for Russia to finance its war against Ukraine by “forcing” to sell its crude at a cheaper price thereby continuing to extract its natural resources. This was told by a US Treasury Department delegation comprising Anna Morris, Assistant Secretary for Terrorist Financing and Financial Crimes and Eric Van Nostrand, Assistant Secretary for Economic Policy of the US Department of Treasury, who are currently visiting India to discuss the next steps in oil price cap policy that was introduced in 2022 to limit Moscow’s capability to finance the Ukraine campaign.
The delegation has met Indian government officials as well as oil companies as Washington considers India to be an important partner and stakeholder in its plan to apprise countries about the phase 2 of the oil price cap that will seek to make Russia sell crude cheaper than before yet keeping the energy market and supplies stable.
“It’s now time for us to respond to a different reality where Russia has created a larger channel to move oil without touching coalition services. Phase 2 of the price cap is intended to respond to that development by increasing the cost, by making it harder to Russia to move oil outside the coalition services nexus, thereby, forcing it to sell more oil either under the cap with coalition services or importantly, offering even bigger discounts to other buyers global buyers outside the coalition,” said Nostrand, at an event organised by the Anant Centre.
He said, “This will make it difficult for Putin to finance its war machine at the same time we are still extracting Russia’s natural resources for the benefit of consumers around the globe.”
“Our goal is not to try to force every molecule, every drop of Russian oil out through this specific price cap regime … We recognise that there will remain a robust trade with Russia outside the G-7 coalition. What the price cap is trying to do is to change the economic incentives of the Russian oil market generally, to force Russia to sell its oil cheaper, regardless of who is buying whether that’s someone with a direct G-7 nexus or other global players,” he added.
The US Treasury Department officials also said that once the crude oil purchased undergo the refining process, it is not considered “Russian” anymore.
“We know that the Indian economy has much at stake in the Russian oil trade, and has much at stake from the global supply disruptions that the price cap is designed to avoid. The price cap’s goals are to limit Putin’s revenue and maintain global oil supply–essentially by creating a mechanism for India and other partners to access Russian oil at discounted prices,” said Nostrand.
“The price cap’s goals are to limit Putin’s revenue and maintain global oil supply–essentially by creating a mechanism for India and other partners to access Russian oil at discounted prices. The price cap’s first year was a successful one by those standards: global oil markets remained well-supplied while Russian oil traded at a significant discount to global oil,” he added.
According to Morris, for India as for any other non-member of the coalition, trade outside the cap is permissible, trade within the cap is also permissible. However, trading within the price cap will give countries the benefit of more discounts.
“Trade within the cap, of course, comes with the benefit of the discount, trade outside the cap happens at whatever the market price the Russians are looking for. And if a purchaser is seeking to purchase oil under the cap then essentially the purchaser is in conversation with those providers to understand whether the purchase has happened under the cap or not,” she said.
After the Russia-Ukraine war began in February 2022, India and China became the top two buyers of Russian crude oil.
Morris also said countries like India are not bound by the price cap as long as New Delhi does not export the oil. She said India was able to buy Russian oil at a discounted rate due to the implementation of the price cap.
Nostrand said, “US and our international coalition have been pleased with the effectiveness of the policy. We saw the Kremlin’s tax revenue from oil drop more than 40 per cent over the first nine months of 2023 compared to the same period a year earlier. And we were gratified to see that the price cap was working in practice as well as in theory.”
He highlighted, “United States and our international coalition have been pleased with the effectiveness of the policy. We saw the Kremlin’s tax revenue from oil drop more than 40 per cent over the first nine months of 2023 compared to the same period a year earlier. And we were gratified to see that the price cap was working in practice as well as in theory.”
Meanwhile, India Thursday said, New Delhi will continue to buy oil from wherever it is available cheapest.
“US Treasury Secretary is here in Delhi. For us, anything to do with energy security, oil purchases, our buying in the international market; all these are guided by our energy security requirement and also it’s a commercial exercise that we do. It’s a commercial venture that we are engaged in. We buy oil from the international market wherever it is available at the cheapest available rate because we have to ensure energy security and that’s of prime consideration,” said Randhir Jaiswal, Spokesperson, Ministry of External Affairs.
In December 2022, the G-7 countries, European Union and Australia agreed to a price ceiling of $60 per barrel of seaborne Russian Urals crude oil in order to diminish Moscow’s efforts to finance the Ukraine war.
