future cash flow
As crude oil prices have fallen, US officials’ language around the price cap has evolved from “reducing” Russia’s revenues to “limiting” future cash flows.
US Deputy Treasury Secretary Wally Adeyomo said on Thursday that the cap “will lead to Russia going forward to earn less revenue and less money to invest in combat operations.”
“The important thing to remember is that we’re starting at $60, but we have … the ability to use the price cap to limit Russia’s revenue over time,” Adeyemo said.
In July, Adeyemo said the goal was to eliminate the “risk premium,” or price increases that Russia had introduced.
oil market with his invasion of Ukraine, to give Moscow less money to “pay for their war machine”.
If Moscow makes good on threats to reduce production rather than sell oil to countries that adhere to the cap, prices could rise, and that’s where it could get tough for the United States and G7 allies.
US officials “want to avoid this at all costs,” Mizuho’s Yoger said, “which could mean that” support for Ukraine suddenly starts to dry up.
Price spike avoided
The oil market has changed significantly since Russia’s invasion of Ukraine on February 24, leading to a rise in prices.
Internal Treasury projections at the time showed global crude prices could exceed $150 with EU sanctions in place and no mitigation measures in place.
And with the IEA predicting that the oil market could lose 3 million Russian barrels per day if the EU’s toughest sanctions are imposed, Barclays and Rystad Energy warned that oil could reach $200.
Treasury’s “true motivation since March has been primarily to preserve Russian flows in the face of EU sanctions, which they don’t think was a good idea,” a source briefed on the Biden administration’s discussions said.
In his fight against Russia’s military, “he believed that if oil prices were to rise, it would not only hurt us economically and politically, but it would also hurt Western support for Ukraine. “
As the G7 planned, India and China have snatched up heavily discounted Russian oil, and are expected to continue making big purchases outside the price cap, moves backed by Treasury Secretary Janet Yellen.