Russia vows to cut off oil to countries that sign on to Yellen price cap

Russia will not supply crude oil to countries that sign on to a plan to cap the price of its oil exports, the head of the country’s central bank said Friday, a form of resistance to the Biden administration’s plans to limit the country’s war funding.

The price cap plan, which Treasury Secretary Janet Yellen promoted in her travel to Asia last week, is a first-of-its-kind effort to form a sort of “buyers’ cartel” to slash Russia’s oil export revenue and, therefore, its main source of funding for the war in Ukraine.

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Asked about the plan Friday during a press briefing in Moscow, Elvira Nabiullina, the governor of the Russian central bank, said, “As far as I understand, we won’t be supplying oil to those countries which would impose such a cap, and our oil, [and] oil products will be redirected to the countries which are ready to cooperate with us.”

Under the plan, participating countries would agree to cap Russian crude at a lower-than-market price. The goal would be to set prices slightly above Moscow’s marginal cost of production but as close to the number as possible to limit profits.

Nabiullina also suggested the plan could upend global oil markets, echoing former Russian President Dmitry Medvedev, who warned earlier this month that global oil prices could “exceed $300-$400 per barrel” if the price caps were implemented. Analysts have also warned there is a risk of an increase, though their estimates are much more modest — projecting somewhere between $140 and $200 a barrel if Russia shuts down production.

A senior U.S. Treasury Department official said yesterday that the price cap could take effect as early as December, to coincide with the European Union’s insurance ban on seaborne imports.

“We are following on what the Europeans have done,” said Deputy Treasury Secretary Wally Adeyemo, speaking at the Aspen Security Forum in Colorado. “They introduced the idea of looking to do a price cap, but they also said that, by December, they plan to put in place their insurance ban.”

Oil exports accounted for nearly $100 billion in revenue for Moscow during the first 100 days of its war in Ukraine, according to a report from the Center for Research on Energy and Clean Air.

But details of the plan, such as where to set a possible price cap, have not yet been decided. The plan also requires a hefty global buy-in and participation from countries, including China and India, that have benefited heavily from the discounted Russian crude. Yellen spoke by phone to Chinese Vice Premier Liu He last week and met with Indian Finance Minister Nirmala Sitharaman on the sidelines of last week’s G-20 summit in Bali, though the outcome of those talks is largely unknown.

Striking the right price point is key: too low, and leaders risk Russia retaliating and shutting down production altogether; too high, and the cap fails to achieve its intended effect.

And if the price cap is successful, “you’re not going to see any difference in the price of oil,” James Stock, a Harvard Kennedy School economist who served on the White House Council of Economic Advisers under President Barack Obama, told the Washington Examiner in an interview last week.

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“The only thing you’d see is a difference in the price of revenues to Russia and the profits of the refiners who are able to purchase the Russian oil,” Stock added.

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