Telephonic Press Briefing on G7 Price Cap on Russian Oil

MODERATOR:  Good morning to everyone from the U.S. Department of State’s Asia Pacific Media Hub.  I would like to welcome everyone joining the call.  Today we have the honor of hosting an on-the-record briefing with the U.S. Department of the Treasury’s Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg and Assistant Secretary for Economic Policy Ben Harris.  Assistant Secretary Rosenberg and Assistant Secretary Harris will discuss the finalization and implementation of the G7 price cap on Russian oil.  After opening remarks, Assistant Secretary Rosenberg and Assistant Secretary Harris will take questions from participating journalists.

I’ll now turn it over to Assistant Secretary Rosenberg for her opening remarks.  The floor is yours.

ASSISTANT SECRETARY ROSENBERG:  Thank you very much, and good morning, everyone.  Thanks so much for joining us today.  I want to start by picking up where the G7 left off after they agreed to implement the price cap policy by explaining a little bit of the objectives – the objectives for the price cap and some of its operational procedures.

We all know that Putin’s war has caused major disruptions around the world, particularly by driving up the cost of energy and food in countries around the world, particularly in developing countries.  The price cap policy is an important tool to put downward pressure on global energy prices by allowing Russian oil to continue flowing to the global markets, which will help to mitigate price spikes and put downward pressure on oil prices.  That’s good for countering inflation, and my counterpart, Assistant Secretary Harris, can speak to that more if there are questions to address that.

The price hike policy will also deny Putin revenue to fund his brutal war in Ukraine.

The price cap policy itself builds on the EU’s, the European Union’s, sixth sanctions package that enters into force on December 5th.  Specifically, the EU has announced a prohibition of services like insurance, banking, or brokering for the seaborne shipment of Russian oil and product globally.  So the new announcement from the G7 confirms that all G7 countries will bring into force similar prohibitions.  Critically, the provision of these services will have an exception, which is to say that oil, Russian oil, sold under the price cap or product sold under the price cap will be expressly permitted.  Given that the EU and UK provide 90 percent of global shipping insurance and G7 countries provide an overwhelming majority of payment and financing services for the global oil trade, there will be great effectiveness and the policy will be quite far-reaching.

And one thing I will just note as a point of information: the U.S. and allies and partners and many broadly in the G7 have announced plans to wind down their own imports of Russian oil, so the price cap won’t change that commitment, whether this has to do with the services that they provide or purchases of Russian oil by others.

Importantly, and I want to stress this, if the G7 did not put in place this price cap policy, we anticipate that it could have led to significant global price spikes, which would harm consumers and businesses around the world in many of the countries in which you all are and from where you all are reporting.  That would let the Kremlin take advantage of this price spike to further pad its own pockets and sell oil at a significantly higher price.  But this price cap will allow and expressly permit the flow of Russian oil into global markets provided it’s sold at a price at or below the cap.  This is the most effective way to keep oil – the oil market well supplied and lower energy prices for our countries, all of our countries, while reducing revenue for Putin.

What we want to do in this price cap policy is incentivize Russia to continue exporting under a cap while preventing Russia from profiting from these higher prices that they have imposed on the market with Russia’s war on Ukraine.

Just a quick note on mechanics before I turn it over to my colleague.  While the entire coalition will eventually set the price, from the perspective of the United States from which we are speaking to you today, there are several key data points we are considering in how the price should ultimately be set, and that includes the marginal cost of production for Russian oil – that is to say, the price cap price should be over the marginal cost of production for Russian oil – as well as (inaudible) it should be in line or consistent with historical prices accepted by Russian in the global market.

Over the coming weeks, we in the G7 and this price cap coalition will work together to determine the price cap and to bring forward the legal regimes in our own jurisdictions that will be of more specificity and clarity to exactly how this will work operationally.  We will release that information on an ongoing basis, including technical advice to market participants as well as further information for the (inaudible) and the public.

With that, let me stop there and return back to you, Katie.

MODERATOR:  Thank you, Assistant Secretary Rosenberg.  I’ll now turn it over to Assistant Secretary Harris for his opening remarks.  The floor is yours.

ASSISTANT SECRETARY HARRIS:  Thank you, Katie.  So picking up where Liz left off, let me reiterate the price cap is an especially important tool for low- and middle-income countries that have been suffering from elevated energy prices caused by Russia’s war.  Because the U.S., the EU, and others are winding down imports of Russian oil, we will not benefit from Russian oil sold under the price cap.  Instead, we hope low- and middle-income countries will be the main purchasers of cheap Russian oil under this new system.

Of course, Russia will seek to sell its oil to countries outside the price cap, but doing so will come at a cost to Russia and those buyers, who will face higher prices for the services necessary to ship that oil without access to G7 services.

Ultimately, we believe the price cap will be successful in our goals of substantially curving Russia’s main source of revenue and lowering energy costs because it offers multiple ways to achieve our objectives.  One, countries can buy cheaper oil under the price cap.  Two, alternatively, countries can choose not to formally join the price cap but they can use their newfound leverage to drive a better bargain when they buy Russian oil.

We’ve already seen public reports of Russia seeking long-term contracts at significant discounts of 30 percent or more because they’re afraid of the price cap.  This means the price cap is working as countries use it to drive a harder bargain with Russia, even without formally joining the coalition.

Regardless of which option countries take, the price cap helps us achieve our objectives by putting downward pressure on the cost of Russian oil exports.  At the same time, the price cap also will help us avert the threat of elevated global energy prices if we do not take action, and the sixth sanctions package came into effect without the cap.

The bottom line is we know that high energy prices are hurting consumers and businesses around the world.  While the United States and many of our allies will not purchase Russian oil under the price cap, we believe it is among our most powerful tools to fight inflation and lower those costs for consumers by preventing future price spikes and ensuring that Russian oil keeps flowing onto world markets, but at a sharply lower price.

With that, I’ll turn it over to Katie for questions.

MODERATOR:  Thank you, Assistant Secretary Harris.  We will now begin the question and answer portion of today’s call.

Our first question submitted in advance goes to Rezaul Laskar of the Hindustan Times in New Delhi, India.  He asks, “What implications, if any, will the price cap have for a country such as India, which has emerged as one of the largest buyers of Russian energy in recent months?”

ASSISTANT SECRETARY ROSENBERG:  Thanks for the question.  I can begin with that.  The implication here will be that in this instance and in this question, India will have access to lower price, to more affordable energy.  As my counterpart Assistant Secretary Harris was noting, it’s not essential or required that every country join the price cap as a formal matter – the coalition is a formal matter – in order for it to nevertheless have great effectiveness.  That is to say that a purchaser such as a refinery in India could use the price cap, use their newfound leverage, as Assistant Secretary Harris pointed out, to negotiate lower prices, more affordable energy.  That’s highly significant as an economic matter, and as we sought to convey to you in our opening remarks, a goal that we all share.  That is, access to affordable energy so significant to our economies in a difficult time.  Thank you.

MODERATOR:  Our second question received in advance goes to Sandhya Sharma of the Economic Times Prime in New Delhi, India.  Sandhya asks, “How will the oil price capping of Russian oil be worked out?”

ASSISTANT SECRETARY ROSENBERG:  Thank you.  I do have (inaudible).  Oh, go ahead.

ASSISTANT SECRETARY HARRIS:  No, I was deferring to you, Liz.  Go ahead.

ASSISTANT SECRETARY ROSENBERG:  Oh, thank you.  I’m happy to take that.  The coalition partners will convene shortly to come together and in a consultative process formulate a price – a price for crude and, ultimately, as a refined product as incorporated into this policy program for refined products.

That price, as we noted in our opening remarks, will be the product of consideration around a number of factors.  From our perspective in the United States, factors of importance to us are being assured that your price is greater than the marginal cost of production for Russia, so there’s a clear economic incentive for Russia to continue to produce the oil and to sell it.  It will be making a profit.  But it is also a priority for us to consider the historical prices that Russia has accepted for its oil, which are lower than some of the highest prices we have witnessed now and we have witnesses over recent months.  That will deny Russia the war premium, the windfall profits that it is reaping from having pushed up the price, invading Ukraine.

Thank you for the question.

MODERATOR:  Great.  Our next question goes to Tim Gardner of Reuters.  Operator, please open the line.  

OPERATOR:  Thank you.  Mr. Gardner, your line is open.

He must have taken himself out of queue.  Mr. Gardner, please re-queue.

QUESTION:  Hello?

OPERATOR:  Please go ahead.

MODERATOR:  We can hear you.

QUESTION:  Oh, hi.  Thank you, and thanks for the call.  I wanted to ask about enforcement of the price cap.  It’s our understanding that secondary sanctions will not be in place.  So how will this be enforced if a country or a consumer doesn’t – it doesn’t apply?

ASSISTANT SECRETARY ROSENBERG:  Thanks for the question.  I’m happy to begin.  I think the primary purpose for – in seeking to explain or to understand the policy is that in fact there are very powerful economic incentives for purchasers of oil, purchasers of Russian oil, who have a distinct interest in being able to access lower price, affordable energy.

So to not comply or to violate these rules would mean paying more for the oil, paying more for the refined product – that is to say, acting against one’s economic interest here.  But to be more specific in answering what you may be getting at and the mechanisms – a question we get often – there will be a system we envision of attestation where the purchaser of the energy, of the oil, Russian oil, will need to furnish the service providers it uses.  Think of them as the shippers, the insurers, the financial payment facilitators or trade finance providers – will need to furnish them with an attestation that they have purchased the energy at below the price cap price.  So there are many opportunities for – to see when the policy is in place and when there is effective compliance should any jurisdiction that under – that hosts service providers that must be compliant with the price cap, should any of those jurisdictions see that there’s a lack of compliance with the price cap, they have an opportunity to address that, and that may involve sharing information for the service providers and continue to operate (inaudible) with the price cap.

So there’s every economic incentive to continue to participate in this system, and that’s the main focus here.  It is possible that those who make material misrepresentations – that lie, that commit fraud – that those may be the subject of enforcement.  But those are not the service providers who will be acting in good faith.  So that’s a narrower enforcement focus.  Thank you.

ASSISTANT SECRETARY HARRIS:  And if I might, I think the only minor point to add is that the price cap was developed in close consultation with service providers.  So this was designed to facilitate their participation in the trade of Russian oil given the (inaudible) that Assistant Secretary Rosenberg mentioned earlier, which was to continue to see Russian trade and the flow of Russian oil to continue.

So this was really designed with the consultation of service providers, because ultimately we hoped to have their cooperation in this endeavor.

MODERATOR:  Our next question will go to Florence Tan of Thomson Reuters in Singapore.  Operator, please open the line.

OPERATOR:  Her line also disconnected.  Ms. Tan, please re-queue up.  She must have taken herself out of queue.

MODERATOR:  Okay, I’ll go with one of the questions submitted in advance and if Ms. Tan comes back online, we can do her question next.  The next question comes from Tommy Patrio Sorongan in CNBC Indonesia, Jakarta, Indonesia.  “How will the price – the scheme of price capping work?  To which countries is this policy implemented?  And if a country decides not to join the price cap, will there be any sanctions from the G7?  Specifically to the U.S., how does Washington perceive countries that still buy Russian oil, such as India?”

ASSISTANT SECRETARY ROSENBERG:  Thanks for the question.  So, to begin with, how does it work?  So as I noted, the coalition countries will come together in the coming weeks and arrive upon a price and will – the coalition will announce that price in advance of the effective date later this year, in December, which will give sufficient time for purchasers of Russian oil to be able to make plans with that knowledge in mind – to book shipments and to put into place compliance frameworks.

Beyond that, when purchasers do make their purchase arrangements to be compliant with the price, they will need to, as was noted before, attest to the price to their service providers.  So think of a purchaser here at the refiner, for example, and they would need to tell their insurance provider or their bank that they are purchasing the oil below the price cap if – if they are to be compliant with the price – so, the price cap.  And if their bank or if their insurer are in a G7 country, then they would – they would have to – in order to use those services, they would need to make an attestation that they are below the price cap.

To the question, the – one of the latter questions that you asked, what if a country wants to move outside of the price – they’re not a price cap country and they want to move outside it.  So there’s two examples that I’d point to here.  The first is – and to the question of, say, India as a country.  So if India doesn’t formally join the price cap, nevertheless an Indian refiner could purchase oil taking advantage of the price cap, using the price cap.  It will give them strong leverage to purchase at a more affordable price, making use of services from G7 or price cap coalition countries as long as they’re paying below the price cap.  That would be consistent with the price cap; there’s no problem there.  That’s a great outcome from the perspective of the price cap coalition countries.  And that is even if India, in this example, doesn’t sign on formally.  So that’s great.

Secondly, another example here – what if a country decides to work entirely outside of the price cap that you conceive of – a different country that seeks to have a vessel, insurance, a bank, a broker, all of which are outside of the G7 coalition – price cap coalition.  That’s possible that they could do that.  It’s possible.  It might be a lonelier path and it would be more expensive and it may involve higher risk, which makes it more economically difficult for someone who (inaudible) worked entirely outside of the price cap.  But it’s possible, and that’s – there’s no violation of the services ban for the price cap coalition that I just described.

Would my counterpart – Assistant Secretary Harris, did you want to add anything to that?

ASSISTANT SECRETARY HARRIS:  No, I think that’s a very complete and comprehensive answer.

MODERATOR:  Great.  So now we will go back to Florence Tan of Thomson Reuters, Singapore.  Operator, please open the line.

OPERATOR:  Ms. Tan, your line is open.

QUESTION:  Hi.  Can you hear me?  Hello?

ASSISTANT SECRETARY HARRIS:  Yes.

QUESTION:  Okay.  All right, yeah.  So I wanted to ask about shipping insurance.  Russia has been providing insurance for Russian cargo.  So how will the price (inaudible)?  And a second question is that the price (inaudible) transshipment happening of Russian oil is getting (inaudible) Malaysia and (inaudible).  How will this (inaudible) be monitored?

ASSISTANT SECRETARY ROSENBERG:  Thank you for the question.  In an instance where Russia provides insurance on a cargo of Russian oil – of course that does occur – they – what that – that in and of itself doesn’t – it doesn’t necessarily implicate the price cap.  But of course, in order to ship a cargo of Russian oil to a consumer – I think you are in Singapore if I’m not mistaken – let’s just say to Singapore, so the shipment is going to Singapore or a country in Southeast Asia.  It doesn’t just require insurance as a service.  There are other services associated.  For example, the vessel flagging authority, the currency for which – in which the payment for the shipment is paid, if there was another (inaudible) service, for example.  It’s possible (inaudible) services of another broker involved somewhere in that transaction.

If any of those services are from a provider in a coalition country or a G7 country, then it would need to be compliant with the price cap.  So I fully appreciate the instance where a – where Russian insurance is provided for a vessel, or rather for a cargo of Russian oil, but it will implicate the price cap if any of the other services come from a G7 country.

When you’re (inaudible) transshipment, there’s a couple of ways that we’ve thought about this and considered this question.  I think the simplest way to describe this is that the price cap policy applies to cargos of – or to Russian oil or refined product, no matter how many times those may be moved from a ship to a ship or transshipped from one initial purchaser to another purchaser.  As long as it’s on the water, that’s where the price cap policy applies.  And as I was noting before, if there are any service providers from G7 countries involved, then it’s subject to the price cap and there will be – all of those service providers are in a position of gathering information about whether the price of the oil is below the cap, and that information will be furnished to national authorities and will help everyone to know whether it is below the price cap and they are compliant.

Thank you for the question.

ASSISTANT SECRETARY HARRIS:  And can I just quick – just add on with a quick comment here, because there has been some confusion as Assistant Secretary Rosenberg and I have spoken with various entities about the price cap.  And so just to reiterate something that she said, this is not – it should not be regarded as a global cap on Russian oil.  It is more accurate to describe this as a condition under which G7 services can be used to trade Russian oil.  But the reason why that’s so effective is (a) it (inaudible) economically for participation from any country who seeks cheaper oil, and so from this perspective, virtually everyone wins except for Russia; and the second reason why it’s so effective is the extensive global reach of G7 services.

So anywhere where there are G7 services present in the trade of Russian oil, the price cap will apply.

MODERATOR:  All right.  That concludes today’s call.  I would like to thank Assistant Secretary Rosenberg and Assistant Secretary Harris for joining us, and thank you to all of our callers for participating.