WASHINGTON — Russian oil that is set to be hit with European sanctions in early December can continue to be shipped without penalty as long as it is loaded onto ships by that deadline and reaches its global destinations by mid-January, the Treasury Department said on Monday.
The announcement could provide some leeway for the Biden administration and its allies, which have been racing to finalize and impose a price cap on Russia’s oil exports before a European embargo on Russian oil goes into effect at the end of the year.
The Biden administration and its allies have been slow to roll out the details of its oil price cap, which is aimed at keeping Russia’s oil flowing to global markets while depriving its government of the revenue it has been using to finance its war in Ukraine. The United States remains concerned that the looming European sanctions on Russian oil exports will roil world energy markets and drive gas prices higher in the United States.
In a sign of the gravity of that concern, President Biden on Monday assailed oil companies for raking in record profits amid Russia’s invasion of Ukraine, accusing them of reaping a “windfall of war” in favor of lowering prices for American consumers, who are struggling with rapid inflation.
The Group of 7 nations and Australia have been working to finalize plans for an oil price cap before European Union sanctions on Russian oil take effect on Dec. 5. The cap will provide an exception that will allow Russian oil to continue to be shipped around the world using Western financing and insurance as long as it is sold at a certain price that is below market rates. In response to questions from the oil industry, the Treasury Department said that oil shipments could be delivered until Jan. 19 as long as they were loaded onto ships before Dec. 5.
The biggest question remains at what price the cap will be set. The United States and its allies have been trying to determine a price that is above Russia’s cost of oil production so that it continues to have an economic incentive to produce and sell oil, which is critical to the world’s supply. Setting the price too low raises the chances that Russia will retaliate and refuse to sell its oil, while setting it too high would defeat the purpose of the policy.
With little more than a month before the cap is scheduled to kick in, the United States and its allies are still working to determine the price, a senior Treasury Department official said on Monday.
Russia has been capitalizing on the volatility that it has created in world energy markets and has been selling large quantities of oil, sometimes at discounted prices, to China and India over the last year.
The Biden administration was initially hoping to convince a wide coalition of countries to adhere to the price cap, but in recent months has narrowed those ambitions to the Group of 7 and Australia. The United States continues to hope that other nations will take advantage of the oil price cap and use it as leverage to negotiate lower prices with Russia.
It remains unclear how far the United States will go to enforce the price cap. It will be relying partly on maritime insurers to help verify that Russian oil is being sold below the price cap limit.
The Treasury official said that buyers who find alternative forms of insurance and financing for oil will not face penalties for using it to back shipments of Russian oil. However, the official said, those services are likely to be more expensive than those that will be available from Western nations under the price cap.