US, EU could waive some Russia sanctions if oil price cap approved: Yellen

The US and EU could waive their ban on shipping insurance and financial services for Russia if key global oil importers back proposals for an international cap on Russian oil prices in response to the Ukraine war, US Treasury Secretary Janet Yellen said July 14.

G7 leaders on June 28 tentatively backed plans for an international cap on Russian oil prices while pledging to boost energy security globally as part of efforts to ramp up pressure on Russia while limiting the economic fallout of sanctions.

Sanctions imposed by the EU in their sixth package in early June included a prohibition on EU operators insuring and financing seaborne transport of Russian oil to third countries after a wind-down period of six months. At present, the UK and US have agreed to ban Russian oil with the EU banning Russian seaborne crude purchases by the end of the year.

"We're proposing an exception that would allow Russia to export as long as the price doesn't exceed a to-be-determined level," Yellen told reporters at a press conference in Nusa Dua, Indonesia "Otherwise, Russia faces a situation where it will be completely cut off from those critical services, and that's likely to shut-in a substantial amount of Russian oil."

Yellen, who has been lobbying EU members to back the oil price cap proposal, said discussions have yet to focus on an appropriate level for a price cap.

"There's been no decision on that. But in principle, we would want a number that clearly gives Russia an incentive to continue to produce, that would make production profitable for Russia," she said. "It's very expensive, both in terms of immediate loss of revenue, for Russia to stop selling oil to the global economy, and it would have an adverse impact on Russia's longer-term capacity if it shuts down wells, to be able to restart them. So, I think we want to make it clear that Russia will continue to have an incentive to produce."

Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of the total oil trade. Russian crude exports have remained near three-year highs in May and June despite existing sanctions but loadings have taken a hit in recent weeks, according to shipping tracking data.

Russia's key export grade Urals has been trading at significant discounts to other crudes since the country invaded Ukraine Feb 24. Platts assessed Urals at 68.34/b and Dated Brent at $108.905/b July 12, S&P Global Commodity Insights data showed. Urals was assessed at $90.72/b and Dated Brent at $100.48/b the day before Russia invaded Ukraine.