The United States is still ‘far’ from reaching an international agreement to impose a price cap on Russian oil exports, with limited enthusiasm so far from the world’s largest energy buyers, l India and China, a senior Biden energy adviser said.
But Amos Hochstein, President Biden’s special coordinator for international energy affairs, said he remained optimistic that Russia would eventually continue production despite a price cap, largely because “their economy has nothing else”.
“We are already seeing evidence in the market that Russia is selling its oil at a significant discount. So we want to put that maximum,” Hochstein told Yahoo Finance. “So we know they’re willing to sell it off so they can sell it, because frankly they have money in the bank, it’s true, but they don’t have anything else.”
Hochstein’s comments come after Russian Central Bank Governor Elvira Nabiullina said on Friday that Moscow has no intention of supplying crude oil to countries that choose to impose a price cap on its exports. Speaking to reporters, Nabiullina added that any Russian oil would be redirected to countries willing to “cooperate” with the country.
The Biden administration has proposed a price cap on Russian oil exports to limit President Vladimir Putin’s income from oil, which Hochstein says is being used directly to fund the country’s war against Ukraine. The cap aims to keep Russian oil prices low, without completely cutting off supply, triggering a devastating spike in global oil prices.
But some EU countries largely dependent on Russian oil have been reluctant to adopt such a decision. This is partly because of fears that Putin is refusing to sell at the price and cutting off supply from Moscow altogether.
“Trying to perfect the mechanism”
Last month, the G7 countries agreed in principle to explore ways to ban “all services that enable the transport of Russian crude oil and petroleum products by sea around the world, unless the oil is purchased at or below a price to be agreed upon in consultation with international partners.” Hochstein said the United States has not yet worked out the details of a framework for a global price cap.
“We’re trying to perfect the mechanism of what it would actually look like and how it would work. We’re not at a point where we have a deal,” Hochstein said. “We have an agreement in principle with the major economies, but not a real agreement.”
Brent crude, the global benchmark, has fallen significantly since surging to nearly $140 a barrel since Russia began its war with Ukraine earlier this year. Oil futures settled near $103 a barrel on Friday, though that still marks a rise of more than 30% this year.
US crude prices fell below $95 a barrel for the first time since April, following a decision by European Union member states to adjust sanctions to allow Russian state-owned companies to ship third countries.
Still, critics of the administration’s proposed policy remain skeptical of its effectiveness, in part because Washington has yet to receive any commitments from the world’s biggest buyers, India and China, who are reluctant disrupt their long-term relationship with Moscow.
The plan will prevail
Since the start of the war, China has almost doubled its imports from Russia to 1 million barrels per day, while imports of Russian crude from India have increased 24 times to 600,000 barrels per day. , according to the Eurasia Group.
Jorge Montepeque, who is credited with reforming oil benchmark prices, told Reuters that price-fixing mandates have been tried before and failed.
“The US tried to fix oil prices in the 1970s, the UK tried to fix forex prices in the 1980s, Mexico tried to fix tortilla prices. And then – boom! — the market settles down. It’s a waste of time,” Montepeque said.
Hochstein is confident plan economics will prevail, arguing that “every country wants to pay the lowest possible price.” He added that Russia has very limited options and will likely force Putin to come to the table.
“Their economy has nothing else. They produce weapons and they produce and they drill for oil and gas,” he said.
Akiko Fujita is a presenter and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita
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