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As clock ticks on G7’s Russia oil price cap
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WHO’S IN THE PRICE CAP COALITION?
The G7 wealthy nations, the United States, Japan, Germany, Britain, France, Italy and Canada, are hammering out the plan with the EU and Australia.
Yellen last month said G7 members were not looking to broaden the coalition since none of the countries outside it were major suppliers of insurance or oil-related financial services.
Britain said Thursday it could ban countries from using its services to transport Russian oil purchased for a price exceeding the cap.
US Treasury Assistant Secretary for Economic Policy Ben Harris said on Sept. 9 that if China negotiates a separate 30 per cent-40 per cent discount on Russian oil because of the price cap “we consider that a win.”
It will likely be weeks before the price level of the caps will be decided, government officials and analysts said.
One person familiar with the process said the cap will be determined in line with the historical average of $63-$64 a barrel, suggesting a natural upper limit.
Currently, Russian crude is priced at a discount to the international Brent benchmark and the G7 wants that discount as steep as possible to keep down Russian oil revenue.
Still, requiring too wide a spread could have the unintended consequence of squeezing global supplies because Russia is the world’s second largest crude exporter, after Saudi Arabia. This could raise fuel prices for Western consumers.
Hoping to prevent this, coalition officials have agreed to set a fixed price when they finalise a price cap on Russian oil later this month, rather than adopting a floating rate, sources said on Thursday.
Consensus on the cap level will be reached with the aid of a “rotating lead coordinator,” the US Treasury said.
HOW DOES IT IMPACT MARITIME COMPANIES?
The plan calls for participating countries to deny Western-dominated oil transport services like insurance, finance, brokering, and navigation to oil cargoes priced above the cap.
Petroleum buyers would need to state they bought Russian petroleum at or below the cap.
Maritime services providers will not be held liable for false pricing information provided by buyers and sellers of Russian petroleum, the US Treasury said.
G7 officials believe the plan will work because the London-based International Group of Protection & Indemnity Clubs insure about 95 per cent of the global oil shipping fleet.
HOW COULD RUSSIA FIGHT BACK?
Putin has vowed to cut exports to countries that participate in the cap, but he also needs oil revenues to help fund Moscow’s war efforts.
Industry players estimate that 80 per cent to 90 per cent of Russian oil can flow outside the cap mechanism using Russian and other non-Western ships and insurance.
In October, JP Morgan estimated that Russia is short about 1 million barrels of daily tanker capacity for shipping crude and 2.5 million barrels short on fuels capacity.
Moscow could end up cutting production as a result, which would apply upward pressure on global oil prices. Prices could rise even if traders fear Putin will stop exports.
Some analysts say Moscow also could withhold oil from Russian assets in other producing countries such as Libya and Iraq.
HOW WILL THE CAP BE ENFORCED?
The plan lacks a centralised enforcement mechanism leaving it up to countries implementing the cap to apply punishments for purchases above the cap.
The US Treasury warned service companies to watch for potential evasion or fraud by Russian oil buyers. Those could include evidence of deceptive shipping practices, refusal to provide requested price information, or excessively high services costs.
Anyone who falsifies documentation or otherwise hides the true origin or price of Russian oil would face consequences under the domestic law of jurisdictions implementing the price cap, Treasury said.
The coalition has agreed the price cap will apply through the first landed sale of sea-borne oil, or when the oil is offloaded from a ship to a tank on land. This means any intermediary trades while the oil is at sea must be at or under the cap, a Western source said on Friday.
Some industry players worry that owners of tankers could face sanctions, noting the United States has no mechanism to determine what due diligence was undertaken.
Worries about potential sanctions, even if unfounded, can cause traders to avoid deals, another factor that can boost oil prices.

Govt working
FROM PAGE B4
from Bangladesh have experienced a downward trend as the country’s apparel buyers are facing financial hardship amid the Russia-Ukraine war.
Local garment makers believe exports will start rising again from January next year.

RFL makes foray
FROM PAGE B4
development of Rainbow Paints; Sohel Rana, head of operations; Shajahan Sunny, head of sales; and Pranab Kumar, head of marketing, among others, were present at the event.