The US and its allies are discussing the cap on Russian oil, with a potential range between $40 and $60 a barrel, sources told Bloomberg.
Leaders at the G-7 summit last week agreed to explore options for a price cap, which is intended to cut Russia’s revenue and hurt its war efforts against Ukraine, while keeping oil accessible to countries that have condemned the invasion.
Although any eventual price cap would depend on market conditions, the $40-$60 range is based on Russia’s marginal cost for producing oil products and what the country charged for oil before it invaded Ukraine in February.
But sources told Bloomberg the Biden administration was concerned a price cap of $40 would be too low. Russian crude traded at roughly $80 a barrel before benchmark prices sold off earlier this week.
Discussions for a price cap emerged after the European Union agreed to phase in a partial ban on Russian oil. Without a way for some Russian crude the reach the market, albeit at a big discount, US officials fear that international prices could get as expensive as $185 a barrel by the end of the year, the sources told Bloomberg.
But some experts have also doubted the plausibility of such a price cap. Last week, top RBC commodities strategist Helima Croft warned a price cap runs the risk of Russia retaliating by cutting off oil supplies abruptly to drive up prices.
If that’s the case, oil prices could skyrocket as high as $380 a barrel, according to analysts from JPMorgan.
And Energy Aspects Director Amrita Sen told CNBC last week that a price cap would only be feasible with cooperation from some of Russia’s largest oil customers, such as China and India. Those countries are already receiving discounted crude from Russia, and in large quantities: Russia gained $24 billion in the first three months of the war from selling to those countries alone.
Sen doubted China and India would agree to the set prices and also raised concerns that Russia would retaliate.
“I think this sounds like a very, very good theoretical concept but it is just not going to work in practice,” Sen added.
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