The US threatens to impose sanctions on buyers of Russian oil who rely on Western services and fail to adhere to the price cap proposed by the G7 countries, as the Biden administration promises to strictly enforce the policy once it takes effect.
In guidelines released on Friday, the US Treasury Department said individuals who make “significant purchases of oil above the price cap,” as well as those who provide false information about those purchases, “could be a target for sanctions enforcement.”
The Biden administration’s warning will apply to buyers of Russian oil around the world who are considering respecting the price cap once it is enacted by the G7 countries and possibly others. Many of them use western service providers, such as marine insurance companies, to complete their shipments. They would thus be subject to the price ceiling.
The Treasury’s advice comes a week after G7 finance ministers reached an agreement to set the price cap after months of discussion. The goal is to limit Russia’s earnings from crude oil and refined products exports without triggering a global price spike. The US is not expected to 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 adhere to the price cap in good faith,” said Wally Adeyemo, the deputy finance minister, in a speech at the Brookings Institution on Friday.
The G7 countries have not yet set a price level for the cap and are waiting to see if other governments join the coalition. The US said the level would be agreed by consensus.
While the US said it could impose sanctions on anyone who fails to meet the price cap, it also noted that misleading service providers would not be held liable as long as they met strict record-keeping requirements.
Analysts said the mention of sanctions would alarm an oil market already on edge with the prospect of a confrontation with Russia over oil exports.
On Wednesday, Russian President Vladimir Putin warned Moscow would halt energy exports if Western countries continued plans to cut prices for its oil and gas.
“We will not supply gas, oil, coal, fuel oil – we will not supply anything,” he said in Vladivostok.
Earlier this week, Moscow said it would not reopen the Nord Stream 1 natural gas pipeline to Europe unless sanctions are lifted. US officials have dismissed the threat it will do the same to oil exports, arguing that Russia would be forced to keep selling oil rather than closing aging fields, which could be costly to restart later.
“Russia can roar and say they won’t sell below the capped price,” Adeyemo said, “but the economics of withholding oil just doesn’t make sense.”
Traders and oil analysts were skeptical of the price cap plan, which was not supported by India and China, Russia’s largest oil importers.
Bob McNally, a former adviser to US President George W Bush and head of Rapidan Energy Group, said that despite the threat of sanctions, the US government was trying to clear up market confusion over the price ceiling plan.
“While oil traders will likely be alarmed by the mention of sanctions, I understand from officials that they intend to make it easy for importers to impose the limit,” he said.
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