US warns of sanctions for buyers that ignore price cap on Russian oil

US threatens to impose sanctions on buyers of Russian oil who rely on Western services and fail to meet price cap offered by G7 countries, as Biden administration pledges to strictly enforce policy once that it will come into force.

In guidance issued Friday, the US Treasury Department said individuals making “significant purchases of oil above the price cap” as well as those who provide false information about such purchases, “may be targets of measures for the application of sanctions”.

The Biden administration’s warning will apply to buyers of Russian oil around the world who plan to meet the price cap once it is set by G7 countries and possibly others. Many of them use Western service providers, such as marine insurance companies, to carry out their shipments. They would therefore be subject to the price cap.

The Treasury guidelines come a week after G7 finance ministers reached an agreement to set the price cap after months of talks. The goal is to limit Russia’s revenue from exports of crude oil and refined products without triggering a spike in world prices. The United States should not impose sanctions on buyers of Russian oil who do not use Western service providers.

“Our approach to implementation is guided by the principle that Russian oil should continue to reach the global market, provided buyers and service providers abide by the price cap in good faith,” said Wally Adeyemo. , assistant secretary of the Treasury, in a speech at the Brookings Institution on Friday.

The G7 countries have yet to set a price for the cap and are still waiting to see if other governments join the coalition. The US said the level would be agreed by consensus.

While the United States said it could impose penalties on anyone who violates the price cap, it also noted that misled service providers would not be held accountable, as long as they met requirements. stringent record keeping.

Analysts said the mention of sanctions would alarm an oil market already nervous about the prospect of a confrontation with Russia over oil exports.

On Wednesday, Russian President Vladimir Putin warned that Moscow would halt its energy exports if Western countries go ahead with plans to cap prices on its oil and gas.

“We will not supply gas, oil, coal, fuel oil – we will not supply anything,” he said in Vladivostok.

Earlier in the week, Moscow said it would not reopen the Nord Stream 1 gas pipeline to Europe unless sanctions were lifted. U.S. officials brushed off the threat of doing the same with oil exports, arguing that Russia would be forced to keep selling oil rather than shut down aging fields that could prove costly to restart later.

“Russia can brag and say they won’t sell below the price cap,” Adeyemo said, “but the economics of withholding oil just doesn’t make sense.”

Oil traders and analysts have been skeptical of the price cap plan, which has not been backed by India and China, Russia’s biggest oil importers.

Bob McNally, former adviser to US President George W Bush and head of Rapidan Energy Group, said despite the threat of sanctions, the US government was trying to clear up market confusion over the price cap plan.

“While oil traders are likely to be alarmed by the mention of sanctions, from what I understand from officials they intend to facilitate the imposition of the cap on importers,” he said. declared.

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