G7 price cap on Russian oil won't be global, says US Treasury

Ben Harris refutes notion that new sanctions could affect China or India in move ‘relating to use of western services only’

The G7 is planning to introduce a price cap on the trade of Russian oil. Reuters
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Group of Seven sanctions on Russian oil will apply only to western traders, a senior US Treasury Department official has said, rebuffing the notion that the price cap would affect China.

The G7, a group of the world’s richest countries, is expected to unveil punitive measures on Russian crude oil, diesel and lower-value products such as naphtha in three stages over the coming months in a bid to deprive Moscow’s war machine of vital funds.

Leaders of the G7 — comprising the US, Canada, the UK, France, Germany, Italy and Japan — are seeking to limit any unintended economic damage the sanctions might cause.

Ben Harris, assistant secretary for economic policy at the US Treasury Department, told the Energy Intelligence Forum in London that the measures would complement those of the EU, whose senior diplomats on Tuesday said ambassadors had agreed to an eighth round of sanctions against Moscow.

“The price cap should be seen as a release valve, an amendment to or an extension of the sixth sanctions package,” Mr Harris told the gathering.

“The intention of the price cap is to preserve the trade of Russian oil, to maintain volumes … it's not to take it off the market, it is to preserve it.”

He said the limit would ensure oil from Russia could continue to be utilised “but at a lower price” to reduce the Kremlin's revenue used to fund the war in Ukraine. He likened the cap to a “conditional ban”.

A figure for the price tag was being decided in consultation with service providers, with the aim of making it easy to put into practice, he said.

“The condition is, if Russian oil is traded below a certain price, buyers can use all the western services they like,” Mr Harris said.

The G7 cap will come into effect on December 5, with details announced beforehand. Further sanctions will be unveiled early next year.

He said the price cap would not affect buyers outside the West seeking to purchase Russian oil, such as China and India.

“If a Chinese refinery using Chinese ships or Russian ships and Chinese insurance and Chinese financing wants to purchase Russian oil for any price, that is in no way a violation of the sanctions regime,” he said. “That's perfectly fine.

“The price cap only relates to the use of western services to trade Russian oil.”

Updated: May 19, 2023, 4:43 PM