New Delhi: The US on Thursday said permitting an unrestricted Russian oil trade was and remains "unacceptable" and the western price cap on Moscow's petroleum products is designed to force it to continue selling oil but for lower prices than it could otherwise obtain. At the same time, US officials said Washington has not asked India to reduce the volume of its oil import from Russia.
The G7 price cap mechanism made it possible to stunt a major source of funding for Moscow's war machine while also maintaining a stable energy supply to Europe and to emerging markets, US Assistant Secretary for Economic Policy Eric Van Nostrand said at an interactive session at the Ananta Centre. "Emerging markets like India benefited from the discounted price of Russian oil relative to global markets," he said, asserting that the price cap mechanism was aimed at forcing Russia to sell oil at lower prices.
Nostrad noted that the price cap is designed to foster a market in which Russia supplies energy at a heavily discounted price while maintaining the volume of energy supplied and at the same time minimising Moscow's profit. In December 2022, the G7 grouping and its allies announced a cap on the price of Russian oil as part of a series punitive measures against Moscow in view of its invasion of Ukraine. The price cap restricts countries to pay more than USD 60 a barrel "Permitting an unrestricted Russian oil trade was and remains unacceptable: it would allow Putin to profit from a price spike he created," Nostrand said.
"However, taking steps to suddenly remove Russian oil from the market ?such as by banning the use of Coalition services in any Russian oil trade ?would risk spiking global oil prices further for the emerging economies most dependent on imported energy," he said. "The Coalition identified the price cap as the way to best navigate these risks. The price cap has two goals: to limit Putin's oil profits and to maintain stable global oil supply. Effectively, the price cap is designed to force Russia to continue selling its oil but for lower prices than it could otherwise obtain," he added.
The US Assistant Secretary for Economic Policy said the price cap was met with considerable skepticism in 2022, but over the year following its announcement, the US and its international coalition were pleased with the effectiveness of the policy. "We saw the Kremlin's tax revenue from oil drop more than 40 percent over the first nine months of 2023, compared to the same period a year earlier, and we were gratified to see that the price cap worked in practice as well as in theory -- that this policy mechanism made it possible to stunt a major source of funding for Putin's war machine was possible while also maintaining a stable energy supply to Europe and to emerging markets," he said.
Acting Assistant Secretary for Terrorist Financing Anna Morris said Russia has been building up an infrastructure of ships, insurers, and other maritime services with providers with opaque ownership structures in view of the price cap. "In the second half of 2023, we observed Russian efforts to build up an infrastructure of ships, insurers, and other maritime services with providers with opaque ownership structures and a history of sanctions evasion activities: sometimes colloquially known as the 'shadow fleet'," she said.
"It's a standard feature of sanctions regimes that the target will invest to avoid the legal reach of sanctions. Indeed, Russia's investments diverted money from the battlefield: they were forced to buy tankers rather than tanks," she said. "Nonetheless, the changing market conditions did result in a narrowing of the discount on Russian oil, and they drove us to expand our approach to enforcing and implementing the price cap regime," Morris said. The two US officials are in India to discuss various dimensions of the global energy market.
