A senior US Treasury official warned today, Tuesday, that the global price of oil could rise 40% to about $140 a barrel, if a proposed ceiling for the price of Russian crude is not imposed, along with sanctions waivers that allow shipments at less than this price.
The official said US Treasury Secretary Janet Yellen will discuss imposing the proposed price cap with Japanese Finance Minister Shunichi Suzuki when they meet on Tuesday.
The official stated that the goal is to set the price at a level that covers the cost of Russia's production, so that Moscow is incentivized to continue exporting oil, but not at prices high enough to allow it to finance its war on Ukraine.
He added that Japanese officials had expressed concern about imposing a price ceiling too low, but they had not rejected a possible price range between $40 and $60 a barrel.
As the European Union prepares to impose a gradual ban on Russian oil and ban marine insurance on any tanker carrying Russian crude - a move Britain is expected to emulate - Yellen sees imposing a price ceiling as the way to keep oil flowing and avoid further price hikes, which could lead to to stagnation.
Washington proposed a "price exception" that would eliminate the ban on marine insurance for shipments below the agreed price;
To prevent the imprisonment of millions of barrels of daily Russian oil production due to the absence of insurance.
The US Treasury official said that the ministry's estimates show that implementing the sanctions without the price exception could lead to significant increases in crude oil prices, which could reach about $140 a barrel from about $100 currently.
Selling oil from the US Strategic Petroleum Reserve
As part of the Joe Biden administration's efforts to calm crude prices, which were boosted by reactions to the Russia-Ukraine war, the United States said on Monday that 14 companies were awarded contracts in the latest sale of oil from the Strategic Petroleum Reserve.
And the administration of US President Joe Biden announced in late March that it would release record quantities of crude of one million barrels per day for a period of 6 months from the Strategic Petroleum Reserve.
The US Department of Energy said - in a statement - that "Chevron", "ExxonMobil" and "Shell" will be among the companies that will receive oil between August 16 and September 30 next.
In the most recent sale, up to 45 million barrels of oil were offered, but companies bought only about 39 million barrels.
Despite this historic withdrawal from strategic reserves, Western sanctions on Russia - one of the world's largest oil exporters - after its war on Ukraine on February 24 helped keep crude prices above $100 a barrel.
High prices pose a threat to Biden's Democratic peers in the November elections, while they seek to maintain control of both the US Senate and House of Representatives.
Oil prices are falling
In Tuesday's trading, oil prices fell after the imposition of new restrictions to contain Covid-19 in China and fears of a global economic slowdown affected expectations for fuel demand.
By 06:33 GMT, the price of Brent crude oil in the upcoming September contracts fell by $1.81, or 1.7%, to $105.29 a barrel, and West Texas Intermediate crude in the upcoming August contracts fell 1.95 cents, or 1.9%, to $102.14 a barrel.
Western sanctions against Russia have disrupted commercial flows of crude oil and fuel.
Oil prices also fell as fears of disruption to the Caspian Sea Pipe Consortium eased after a Russian court on Monday overturned an earlier ruling to block the pipeline for 30 days.
But traders and dealers remained afraid of the suspension of the pipeline that transports crude from Kazakhstan through the Black Sea.
Its suspension could affect 1% of global oil supply.
US President Joe Biden will call on the Organization of the Petroleum Exporting Countries (OPEC) to increase production when he meets Gulf leaders in Saudi Arabia this week.