The Biden administration has continued private negotiations with Western allies to implement a global cap on the price of Russian oil to avoid a potential gas price disaster.

The Department of the Treasury, which is leading the effort, said it continues to negotiate the policy which it has argued is necessary to ensure global and U.S. oil prices don't surge in the coming months. The agency, which has engaged in discussions with a number of nations both in and out of the G7, could reach a resolution with partners as soon as September.

"A price cap on Russian oil will both deny Putin money for his war machine and put downward pressure on the high oil costs caused by Russia’s unprovoked war against Ukraine," a Treasury Department spokesperson told FOX Business in a statement.

"We continue to have productive discussions with the G7 and other allies and partners, who share a common interest in helping consumers by preventing further disruptions to the global supply of oil and reducing revenue to the Kremlin," the spokesperson added.

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Janet Yellen sits next to President Biden at a Cabinet meeting

President Biden speaks with Treasury Secretary Janet Yellen during a cabinet meeting. (Sarah Silbiger for The Washington Post via Getty Images / Getty Images)

In late June, the U.S. and G7 allies announced their intention to implement the price cap, which would effectively disallow international oil buyers to purchase Russian product for a price greater than some figure set during negotiations. Treasury Secretary Janet Yellen said the policy would limit Russian government revenue and stabilize global markets.

For example, the nations could set a cap of $50 per barrel of Russian oil even as the benchmark price of oil remains near $100 a barrel, an unprecedented move forcing all purchases of the Russian product to come at a significant discount. Much-needed oil would continue to flow while Russia's government would take a financial hit.

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"Yeah, this is novel, but, my gosh, we are in a novel situation," David Wessel, the director of the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy, told FOX Business in an interview. "It's a difficult situation for the West. On one hand, we want to sanction Russia. On the other hand, we want to prevent an increase in oil prices that is so steep that it pushes the rest of the world into recession."

Vladimir Putin attends a meeting

Russian President Vladimir Putin is pictured in Moscow, Russia, on March 25. (Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP, file / AP Images)

Failing to negotiate a price cap with a stipulation that allows insurance on vessels abiding by the set price point, therefore, could decrease global oil supplies and lead to much higher prices, Wessel added.

Wessel said it is important to ensure Russian oil continues to flow to ensure adequate supply. Russian industry accounts for 10% of the world's petroleum supply and produces about 10 million barrels per day of oil (mbd), exporting roughly 5 mbd of oil and another 3 mbd of petroleum products like gasoline, according to a Federal Reserve report from March.

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The European Union and U.K., though, adopted a package of sanctions targeting Russia's economy restricting Russian oil imports and, potentially more importantly, prohibiting operators from insuring or financing the transport of Russian oil on June 3.

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"It's a very delicate equation here," Wessel continued. 

"When the Europeans said, ‘Not only are we not going to buy any oil from Russia, but we are going to forbid our insurance companies on the continent and in the U.K. from insuring or reinsuring or financing shipments of Russian oil,’ that made the U.S. very nervous because, if enforced, that would make it almost impossible for Russia to export oil and to the extent that it could export oil, it would be at a very reduced supply," he said.

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Kevin Book, a National Petroleum Council member and managing director of ClearView Energy Partners, noted that tankers carrying Russian crude oil would still be able to hire an insurer of last resort, but said the global market would still tighten if a price cap deal wasn't reached.

"It narrows the availability of ships, reduces the overall supply," Book told FOX Business in an interview. "It doesn't necessarily imply a catastrophic shutdown of the flows, but a tightening of a market that is already tight."

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