"Top Western finance officials are expected to lay out their plan for setting a cap on the price of Russian oil this week as they push to put together a workable policy before a December deadline.
Finance ministers from the Group of Seven wealthy democracies are set to meet virtually on Friday, when they are expected to release an endorsement of the price-cap plan and commit to finalizing its implementation, people familiar with the matter said.
The expected announcement opens a new front in the West's so far largely unsuccessful efforts to squeeze Russia's energy revenue. Still, officials are grappling with several complex questions about how the price cap would work.
Oil and gas remain a huge source of revenue for Russia, making up around half of the country's budget revenue.
Western officials have been working for months to find a way to reduce those financial inflows while keeping enough Russian oil on global markets to prevent a fresh jump in already high energy prices.
Under the plan officials have been discussing this summer, the G-7 nations would bar financing and insuring Russian oil shipments unless the oil is sold below a set price. The countries make up just over 30% of the world economy, according to the International Monetary Fund, and insure over 90% of global shipping traffic, according to Bruegel, a think tank.
"Our goal here is to create a permission structure that allows Russian oil to flow but reduces their revenues," Deputy Treasury Secretary Wally Adeyemo said in an interview on Wednesday.
Among the key details still under discussion is the price at which the cap would be set. Officials are trying to find a balance between limiting Russian revenue and maintaining an incentive for Russia to sell its oil.
Oil traded in New York at around $90 a barrel on Wednesday. Russian crude is selling at a discount of more than $20 a barrel below global benchmarks, analysts said.
The price-cap plan would also apply to petroleum products, such as fuel oil, another major Russian export, people familiar with the plan said.
Treasury Secretary Janet Yellen started pushing the price-cap idea this spring amid concern that a European Union plan, approved in June, to ban the import and insurance of most Russian oil could cause prices to rise rapidly. She warned that the EU plan could push inflation higher and send the global economy into recession, all while ensuring the Kremlin could make up for lower volumes of oil sales through higher prices.
European officials are doubtful the plan would have a major impact on prices.
Senior U.S. Treasury officials believe markets underestimate the impact the EU ban could have on the global price of oil, with internal estimates showing the price of crude could rise to roughly $140 a barrel.
The EU's sanctions on insurance and financial services for Russian oil are set to go into effect on Dec. 5.
Under the price-cap plan, the EU insurance ban would be reversed, allowing Western companies to continue providing financial services for shipment and sales of Russian oil outside the U.S. and Europe at the set price.
Still, important differences persist within the G-7 over the proposal.
Meanwhile, support from outside the G-7 is uncertain.
Officials and analysts see little chance of persuading China to abide by the plan. India, whose purchases of Russian oil, have soared from next to nothing before the sanctions on Russia to as much as 1 million barrels a day, also seems unlikely to sign on.” [1]
1. World News: West to Outline Caps on Oil Price
Duehren, Andrew; Norman, Laurence.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 01 Sep 2022: A.7.
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