The U.S. still remains ‘a ways away’ from reaching an international agreement to impose a price cap on Russian oil exports, with limited enthusiasm from the world’s largest energy buyers India and China, so far, a Senior Biden energy advisor said.
But Amos Hochstein, Special Coordinator for International Energy Affairs for President Biden, said he remains optimistic that Russia would ultimately continue its output despite a price limit, in large part because ‘their economy has nothing else.’
“We already are seeing evidence in the market that Russia is selling its oil at a significant discount. So we wanna put that max,” Hochstein told Yahoo Finance. “So we know that they're willing to sell it at a discount in order to be able to sell it, because frankly they have cash in the bank, that is true, but they don't have anything else.”
Hochstein’s comments come after Russian Central Bank Governor Elvira Nabiullina said Friday, Moscow had no plans to supply crude oil to countries that choose to impose a price cap on its exports. Speaking to reporters, Nabiullina added that any Russian oil would be redirected to countries that are ready to “cooperate” with the country.
The Biden administration has proposed a price cap on Russian oil exports to limit President Vladimir Putin’s revenues from oil, which Hochstein said is being used directly to fund the country’s war against Ukraine. The cap is intended to keep Russian oil prices low, without cutting off supply altogether, triggering a devastating spike in global oil prices.
But some EU countries largely dependent on Russian oil have been hesitant to embrace such a move. This is partially because of fears Putin will refuse to sell at the price, and cut off Moscow’s supply altogether.
'Trying to perfect the mechanism'
Last month, the G7 nations agreed in principle to explore ways to prohibit “all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultation with international partners.” Hochstein said the U.S. has yet to settle on the specifics of a framework for a global price cap.
“We're trying to perfect the mechanism of how that would actually look and how it would work. We're not at a point where we have an agreement,” Hochstein said. “We have an agreement in principle with the major economies, but not an actual agreement.”
Brent crude, the global benchmark, has pulled back significantly since climbing near $140 a barrel since Russia began its war on Ukraine earlier this year. Oil futures settled near $103 a barrel on Friday, though that still marks an increase of more than 30 percent this year.
U.S. crude prices fell below $95 a barrel for the first time since April, following a decision by European Union member states to adjust sanctions to allow Russian state-owned companies to ship third countries.
Yet, critics of the administration’s proposed policy remain skeptical of its efficacy, in part because Washington has yet to receive any commitments from the world’s largest buyers, India and China, who remain wary of disrupting their long-term relationship with Moscow.
The plan will prevail
Since the war began, China has nearly doubled its imports from Russia to 1 million barrels per day, while India’s Russian crude imports have soared 24-fold to 600,000 barrels per day, according to the Eurasia Group.
Jorge Montepeque, who is credited with reforming benchmark oil pricing, told Reuters, the mandates to fix prices have been tried before and failed.
“The U.S. tried to fix prices for oil in the 1970s, the U.K. tried fixed forex prices in the 80s, Mexico tried fixed tortillas prices. And then — boom! — the market settles. It is a waste of time," Montepeque said.
Hochstein is convinced the economics of the plan will prevail, arguing that “every country wants to pay as low a price as possible.” He added, that Russia has very limited options, and is likely to force Putin to come to the table.
“Their economy has nothing else. They produce weapons and they produce and they drill for oil and gas,” he said.
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita