US, allies discuss capping Russian oil at $40-$60 a barrel to cut war financing

The US and its allies have discussed trying to cap the price on Russian oil between $40 and about $60 a barrel, according to people familiar with the matter.

Allies have been exploring several ways to limit Russia’s oil revenues while minimizing the impact on their own economies in discussions that began in the run-up to the Group of Seven summit, Bloomberg reported on July 6.

At the summit in Germany on June 28 leaders agreed to explore options to cap prices by banning insurance and transportation services needed to ship Russian crude and petroleum products unless the oil is purchased below an agreed price.

A more specific threshold would depend on market conditions when a cap is agreed and those could change significantly. Before Monday’s mini-rout in headline oil prices, Russian crude was probably trading around the $80-a-barrel mark. Information about transactions in the nation’s barrels has become less visible since the invasion.

The range spans from what is believed to be Russia’s marginal cost of production and the price of its oil before the Feb. 24 invasion of Ukraine, the people said. The Biden administration considers a cap of $40 to be too low, two of the people said. The aim is to cut Moscow’s revenue for its war in Ukraine but the risk is that poorly executed measures would lead to a spike in oil prices.

The Biden administration has so far steered away from deploying extra-territorial secondary sanctions to enforce restrictions imposed on Russia and such moves are usually seen with concern among some European allies. Their use alongside a price cap is likely a measure of last resort, according to one of the people.   

Biden administration officials are having multiple meetings a week on the price cap now, trying to push it into reality, one official said. The effort will intensify in the coming weeks, the official said.

Spokespeople for the White House National Security Council didn’t immediately comment on the discussions.

While oil caps got a mention in the G-7 communique, there is a lot of skepticism that an agreement will be reached in the near future as the idea still needs fleshing out and there are a number of obstacles. Nevertheless, discussions are ongoing to try to nail down a concrete proposal.