US to exempt Russia oil loaded before Dec 5 from price cap plan

THE US plan to cap the price of Russian oil sales, part of the broader international response to the invasion of Ukraine, will temporarily exempt shipments loaded before the Dec 5 implementation date, offering some clarity to oil shippers, traders and investors.

The announcement, released on Monday (Oct 31), answers one of several key outstanding questions about the plan, which was devised by the US Treasury Department - what happens to shipments of Russian oil priced above the cap that were loaded before the deadline but remained en route when the regime comes into force.

Those shipments of Russian crude exempted from the US-led price cap before the deadline must also be unloaded by Jan 19, the department said on Monday.

Anxiety has been growing over the lack of clarity about how the US price cap plan aligns with separate European Union (EU) and UK sanctions set to take force on Dec 5.

A Treasury official, responding to questions after Monday’s announcement, said the department understands the latest round of EU sanctions, adopted Oct 6, is consistent with the Treasury’s new guidance. As EU sanctions language stands, it’s unclear whether such shipments could lose their insurance mid-voyage if the bloc doesn’t modify its provisions or provide guidance.

The official added that the Jan 19 time limit for oil offers a reasonable wind-down period while preventing Russia from using ships as a floating storage option exempt from the cap. As well, according to the official, a similar grace period would be extended to shipments of refined petroleum loaded before Feb 5, when the cap applies to those products.

The US price cap plan was developed to work in conjunction with EU sanctions, which would bar companies in the bloc from providing services to support the shipments of Russian oil anywhere in the world beginning Dec 5. Those include trade finance, brokering and insurance.

The Biden administration has feared those measures would trap a meaningful amount of oil inside Russia, causing global prices to spike. As a workaround, the Treasury convinced Group of Seven governments, and then the rest of the EU, to carve out an exception allowing companies to extend those services provided a cargo was priced under an agreed cap.

The plan has so far survived severe scepticism from some within the energy sector, as well as within governments allied with the US on overall Russia sanctions, but details of its implementation remain hazy as the deadline approaches.

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A separate Treasury official speaking on a call with reporters on Monday said the department’s staff have been holding hundreds of consultations with industry groups and market participants in an attempt to allay concerns.

The official declined to say when the coalition of countries working on the cap would set the price level for the programme or where that level might be. The US has signalled it might aim for a cap on crude prices above US$60 a barrel. BLOOMBERG