U.S. Treasury Secretary Janet Yellen said on Wednesday that a price cap on Russian oil exports in the $60-a-barrel range would likely be sufficient to reduce Moscow’s energy revenues while allowing profitable production.
Yellen told an event at the International Monetary Fund and World Bank meetings in Washington that the United States and its Western allies are still discussing where to set the price for a capping mechanism meant to punish Moscow for its invasion of Ukraine while keeping Russian crude on the global market.
Backers of the cap, which would deny Western-supplied shipping insurance, finance other services to Russian oil cargoes above a specified price, aim to implement it on Dec. 5, as the European Union implements a phased ban on Russian crude.
Yellen said that Russia has been willing to produce and sell oil in the $60 range over the past five to seven years.
“So certainly a price in that range would be sufficient to feel that Russia could profitably produce and sell oil,” Yellen said, adding that Russia’s cost of production was “low.”
Russian Urals crude has recently traded at around $75 a barrel, or a $17 discount to benchmark Brent futures.
Yellen’s deputy Treasury secretary, Wally Adeyemo, told a conference in New York that Russia was trying to lock in contracts at prices far below the Brent price, a sign that price cap discussions were having some effect.
“The objective is to protect the world from the consequences of a global spike in oil prices,” Yellen said of the price cap.
She said the Treasury has been attentive to the dollar’s reserve currency status and does not want to become overly reliant on financial sanctions that could undermine it. But in the case of Russia’s invasion of Ukraine, there was a broad coalition of countries willing to take strong action, including sanctioning Russia’s central bank.
The bar for imposing such sanctions “is very, very high. To take an action with that level of seriousness, really we would only do when there’s very vocal support among a broad coalition of countries to do it.”
Source: Reuters (Reporting by David Lawder Editing by Chris Reese and Sam Holmes)