Russian oil price cap would save emerging markets billions, US says

Russian oil price cap would save emerging markets billions, US says
# 04 October 2022 15:54 (UTC +04:00)

The US Treasury has estimated the G7’s plan to cap the price of Russian oil exports could yield $160bn in annual savings for the 50 largest emerging markets, as Washington insists the scheme it has championed will keep a lid on energy costs around the world, APA reports citing the Financial Times.

The analysis was developed ahead of the IMF and World Bank’s annual meetings next week, where high energy costs triggered by Russia’s invasion of Ukraine will take center stage as one of the heaviest burdens on the global economy. At the same time, the Opec+ oil producers’ cartel is planning new cuts in supply at its meeting this week.

The G7 approved plans for a price cap on purchases of Russian oil last month with an aim of cutting revenue for the Kremlin to wage war in Ukraine. Starting in December, it would allow western companies to service and insure Russian oil cargoes around the world, exempting them from EU and other western embargoes, as long as sales are made below the cap.

Western allies still have to agree on the level at which the cap will be set. Wally Adeyemo, the deputy Treasury secretary, told CNBC last week it would be “well above” Russia’s cost of production in an effort to punish Moscow without spurring Russian oil companies to scale back supplies.

However, there are still doubts and uncertainty in the oil market about the extent to which one of the most novel international economic policymaking experiments ever attempted will work in practice, what its effect will be on the market and how Russia will react.

The US Treasury’s study — expected to be shared with external partners in the coming weeks — compares the impact on the global oil market of a functioning price cap plan for Russian oil with a scenario in which embargoes were in place without exemptions for shipments under a price cap. The Treasury declined to specify which price level would lead to $160bn in savings.

“While there is significant uncertainty, a Treasury analysis finds that in aggregate, the price cap exception could save the 50 largest emerging market (EM) and low-income countries (LIC) about $160bn annually in spending on oil imports,” a Treasury official said.

“This means that countries have a significant incentive to benefit from the price cap, including purchasers like China and India, and that all net oil importing EMs would benefit from lower oil prices,” the official added.