A U.S. Treasury official has ruled out secondary sanctions to enforce a price cap on Russian oil exports despite a proposal by U.S. senators last week.
Democratic and Republican senators last week proposed that the U.S. President Joe Biden's administration use secondary sanctions on international banks to strengthen the price cap, which was intended to cap Russia's oil revenues while minimising the impact on global markets and prices.
Catherine Wolfram, deputy assistant secretary for climate and energy economics at the U.S. Treasury, told reporters on the sidelines of the APPEC 2022 conference.
We have all the service providers that are part of the coalition and each country brings in some sanctions. The Group of Seven G 7 nations expect companies in the supply chain from brokers to banks, insurers and shipping firms to monitor Russian oil trades and report irregularities. Industry executives and analysts have raised questions about the feasibility of the oil price cap and its enforcement.
Wolfram said the authorities will release full guidance on how the Russian oil price cap will be implemented before European Union sanctions on Russian crude exports take effect on December 5.
U.S. officials said they'll consider Russia's marginal production cost and historical prices before the Ukraine war when setting the price to encourage Russia to continue production.
Wolfram said that the price cap will apply to Russian crude oil in every trade, but not refined products that have been produced from Russian crude oil.
She said once oil is substantially transformed, the price cap will no longer apply.
The revenue doesn't go to Moscow if traders benefit from trading these products, she added.
Wolfram said that she does not believe that China and India will join the coalition formally at the government level, as it would not be in their self interest, but said that a number of Indian and Chinese companies would find it in their economic interest to continue using trade services provided by G 7 countries after the price cap is in place.
She said that some Indian importers think Russian insurance is more expensive than using UK or Norwegian insurance.
The price cap is only applied to Russia, and the U.S. administration is in close contact with OPEC, who doesn't like volatility and the idea of big amounts of Russian oil coming off the market.