The US government plans to announce a price cap on Russian oil in coming days and will provide detailed guidelines on how to legally participate in trading or financing Russian oil, according to a senior Treasury official, Yahoo Finance has reported.
The US has joined forces with the G7, the European Union (EU), and Australia to ban imports on Russian oil, part of sanctions that it and other nations have rolled out since Russia's invasion of Ukraine. The countries have also agreed to a price cap on Russian oil to keep it flowing onto the market, preventing a spike in global prices that could hurt consumers globally while also limiting Russia’s revenues.
The US trading and financing guidelines align very closely with those recently announced by the UK which will prevent countries from using its services to transport Russian oil unless it is purchased at or below the oil price cap set by the oil price cap coalition of the G7, EU, US, and Australia, the Treasury official told Yahoo Finance.
Most Russian oil uses Western shipping and insurance out of the UK. The US government hopes to make offering services to trade Russian oil more seamless for purchasers and participants to avoid compliance issues with different rules in different areas of the world.
As long as Russian oil is purchased at or below the price cap, trading, financing, shipping, insurance and customs brokering will all be covered and not considered a violation of sanctions. The Russian oil import ban and new guidelines take effect on December 5, according to the Treasury official.
The price cap will be an actual price and not a range, the official added, and it is expected to be set quarterly or semi-annually. While the actual price will be set soon, it is expected to be above the cost of production and will take into consideration the state of the oil market and how much Russia has earned previously on oil revenues.
The cost of oil production varies across different regions in Russia. The IMF estimates the full-cost breakeven price for production of Russian oil is close to $30 to $40 per barrel.