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U.S., Allies Negotiating Price Level for Russian Oil Cap

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WASHINGTON—The U.S. and its partners are rushing to hammer out an agreement on a level for a price cap on Russian oil in the next couple of weeks as they seek to contain global oil costs in the wake of a production cut by the Organization of the Petroleum Exporting Companies and its Russia-led allies.

The Group of Seven large advanced democracies, along with Australia, are working to put into place a plan ahead of a Dec. 5 deadline that would bar the use of financing, insuring and shipping services for Russian oil unless the oil is sold below a set price limit.

Officials involved in the talks are aiming to establish and release the full price-cap plan at least a month ahead of the December deadline to give markets time to prepare for the novel sanctions regime.

Biden administration officials have denounced the OPEC production cut, which was in part a retaliation by producers for the U.S.-led price-cap push. Treasury officials have said they continue to move forward with the price-cap effort, with one saying that higher global oil prices could make buying Russian oil under price cap a more attractive possibility worldwide.

Discussions between the U.S. and its allies are now focused on the specific price for the cap, according to U.S. and European officials. Treasury Secretary

Janet Yellen

said this week that Russia had sold oil for around $60 a barrel in recent history—hinting at a possible level for the cap. That would set the price above Russia’s cost of production, which some Russian government documents put at roughly $45 a barrel. A $60-a-barrel price is also in line with historical prices for Russian oil.

“So certainly a price in that range would be sufficient to feel Russia could profitably produce and sell,” Ms. Yellen said. Brent crude traded at above $90 a barrel on Thursday, though Russian oil has sold at a discount on global markets this year.

Ms. Yellen said Friday the U.S. and its allies could adjust the price over time. U.S. officials have said the price would be a set dollar-per-barrel amount.

“The coalition that are imposing these services bans will jointly decide on what the appropriate price is,” she said, adding “no decisions have been made” as to the level.

Oil prices have been a sensitive consideration for the Biden administration as it tries to tame the highest inflation in decades. Energy prices are a driver of broader consumer inflation in the U.S., which advanced 8.2% from a year earlier last month, and gasoline prices have edged higher in recent weeks.

Diplomatic and industry officials have been pressing the Treasury Department for more information about their price-cap plan as oil traders begin making plans for shipments in December. In recent briefings between Treasury officials and oil-market participants about how to comply with the price cap, much of the discussion has focused on what the price will be, according to people familiar with the meetings.

Sri

Mulyani Indrawati,

the finance minister of Indonesia who discussed the price cap with Ms. Yellen this week, said she has been asking about the price. She said that Pertamina, Indonesia’s state-owned energy giant, is considering the possibility of buying discounted Russian oil, and that the purchases could take place under the cap.

“Well, if we can impose it, it’s definitely benefiting us. Why not in this case, right? Although we don’t know at what level you are going to cap the price,” she said.

Janet Yellen said this week Russia had sold oil for around $60 a barrel in recent history, hinting at a possible level for the cap.



Photo:

Yuri Gripas/Bloomberg News

The plan seeks to leverage Western control of maritime insurance, financing and shipping to compel Russia to sell oil under the price cap. Some market analysts expect that Russia would likely be able to still sell oil without access to insurers and banks based in G-7 countries.

Even if Russian oil is sold outside of the price-cap system, Treasury officials believe that purchasers will seek to buy Russian oil at a price near the level set by the G-7. Treasury officials and some market analysts also think it would be more expensive for Russia to find alternative insurance and financing for shipping its oil, reducing its net revenue.

Turkey has increased its purchases of Russian oil this year as it has sold at a discount. Asked if Turkish buyers would comply with the price cap,

Nureddin Nebati,

the Turkish finance minister, said that the cap hasn’t yet been put into place.

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“We need to take the necessary steps in order to supply our needs and also we need to do whatever is necessary in order to protect the interests of our country,” he said.

Mr. Nebati said Turkey would be able to buy and ship Russian oil without the need for Western financing or insurance if necessary.

“In case of any sanctions, Turkey has all necessary capacity in order to develop its own tools to adapt itself to the new situation but without violating any of the sanctions,” he said.

The U.S. and its allies are trying to put the price cap into place ahead of Dec. 5 because the plan is an exemption to the European Union’s current sanctions banning the insurance and financing of Russian oil. U.S. officials have been worried that the EU ban, without a carve-out for the price cap, could take large amounts of Russian oil off the markets, crimping global supply and raising prices.

Write to Andrew Duehren at [email protected]

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