US Lawmakers Want Stricter Russian Oil Price Cap

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US legislators want a say in the forthcoming price cap on Russian oil.

Senators Pat Toomey (R-Pennsylvania) and Chris Van Hollen (D-Maryland) announced a sanctions bill that has broader powers to enforce the proposed price cap on Russian oil than what the Biden administration is currently advocating.

The senators’ proposal threatens to block companies from the US financial system if they buy oil priced above the cap, a structure known as “secondary sanctions” that have been controversial in the past when used in other sanctions programs, such as that on Iran.

The US, Europe and other G7 members are working on a system that would block companies in their jurisdictions from providing insurance or financial services for any transactions where oil is priced above a yet-to-be-determined cap. But so far the price cap isn't designed to go after purchasers in countries that don't voluntarily sign on to the mechanism.

The legislation is meant to act “as a complement to the administration’s effort, a backstop,” Van Hollen said in a Senate Banking Committee hearing Tuesday. “Because you can easily imagine Vladimir Putin saying that he’s not going to comply with this price cap. And that will set off negotiations with those around the world who may be willing to purchase oil for a little bit above the price cap,” he added.

But Treasury Department officials have seemed comfortable with the idea that Russia may be able to sell some oil above the cap. They’ve largely framed the idea that Russia is forced to sell at steep discounts as the price cap looms as a success. After all, their objective is to reduce revenues — and steep discounts do that. And the Biden administration is balancing its concerns over Russia’s revenues with those of oil market supply.

No, Thank You

The Treasury Department’s Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg did not seem particularly keen on the proposal. “The US administration and our G7 partners have a good deal of leverage and authorities right now” to enforce the cap, Rosenberg told senators in the hearing.

In its most recent guidance on the oil price cap, the Treasury Department said companies providing insurance or financing for a transaction involving Russian oil will have to attest to the price at which the oil was bought. Enforcement would only come if, for example, a purchaser lies to those service firms about the price they are paying. “At this time, we have sufficient authorities in order to pursue that,” Rosenberg said.

That doesn’t mean Congress will let it lie. Secondary sanctions measures have generally come from Congress, and Russia’s continued oil revenues have been a focus for lawmakers on both sides of the aisle.

“I intend to work with Senator Van Hollen to get this bill enacted as soon as possible so that Russia can no longer profit from the oil sales funding its war with Ukraine,” Toomey said.

Sanctions, Oil Supply, Ukraine Crisis
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