US in talks with India, China to introduce price cap on Russian oil

The Biden administration has bolstered efforts to sign big oil importers on to a plan to cap prices they offer for Russian crude, concerned that without it the world faces a damaging surge in fuel costs.

Report informs, citing Financial Times, that negotiations are under way between the US and China, India and other countries that have been buying up discounted oil from Russia amid the situation in Ukraine.

The diplomatic efforts in Washington come as the UK and US prepare to join an EU ban on insurance and services for ships carrying Russian oil.

The result could be a decline in Russian oil deliveries if it cannot find enough ships willing to sail without coverage. US officials have warned other countries that the expected drop in exports could leave oil markets short and send prices spiralling higher, harming consumers while offsetting any financial pain in Moscow.

The US Treasury has pushed members of the G7 group of nations and big buyers of Russian oil to impose a price cap, which would allow imports of Russian oil to be exempt from the insurance and maritime services ban as long as they are priced at a substantial discount to the prevailing market price, US officials said.

“Russian production is going to fall when the services ban fully kicks in, unless we use the price cap to allow exports to continue,” said a person close to the negotiations. “It is the one way of preventing a significant rise in prices.”

US officials, speaking on condition of anonymity, said they remain concerned that oil traders may be underestimating the potential impact of imposing an insurance ban without a price cap.

They are convinced the insurance bans are capable of shutting in a significant share of Russian oil production once phased in. They argue that Russian exports — which averaged 7.8mn barrels a day of crude and refined oil products before the military operation in Ukraine — are too large to handle without access to the global tanker fleet.

The US has argued to other oil importers that they can enjoy even cheaper access to Russian oil under a price cap, officials said.

A price cap level has not yet been decided on, and the mechanism could be flexible to account for movements in oil markets, people familiar with negotiations said. Russian benchmark Urals grade crude was selling this week for $79 a barrel, compared with $104 for Brent, the global marker.