U.S. builds loopholes to Russian Oil Price Cap but closes the Latvian Blend route

The price cap on Russian oil will not apply to crude "substantially changed" outside Russia. This effectively closes the Latvian Blend route used by the U.S. refiners to import Russian oil. European refiners who now buy Russian oil via this channel still have access to the route.

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

The U.S. Treasury Department declared that the price ceiling on Russian oil would not apply to crude “substantially changed” outside of Russia.

Tuesday, the Treasury Department stated that the price cap remains in effect if, after clearing customs, Russian oil is returned to the water (i.e., transported by maritime transport) without being fundamentally converted outside the Russian Federation. This means that U.S. service providers can only provide covered services indicated in the determination if Russian oil is traded at or below the appropriate price cap.

The Treasury Department stated that once crude oil is substantially altered in a jurisdiction other than Russia, it will no longer be recognised as Russian origin, and the price ceiling will no longer apply.

This announcement effectively closes the Latvian Blend route used by the U.S. refiners to import Russian oil. However, European refiners who now buy Russian oil via this channel still have access to the route. The Latvian Blend consists of 49.99% of the oil produced in Russia and 50.1% from other countries. Europe is yet to announce such measures.

Accordingly, the document states that a refiner in a jurisdiction that has not prohibited the import of Russian oil is permitted to purchase crude at or below the price cap and rely on U.S. service providers for services linked to the marine transit of that crude oil. 

Additionally, such a refiner may refine the crude oil and export the refined oil via marine transport, utilising U.S. service providers, without being subject to the price cap. OFAC (Office of Foreign Assets Control) does not regard the simple mixing of crude oil as a substantial alteration for purposes of the assessment.

The agency also stated in its bulletin that the United States would not import Russian crude oil under the recently disclosed price cap agreement approved by the United States and its allies.

Transactions that include the import of Russian oil into Croatia, Bulgaria or any landlocked member of the European Union have been cleared due to new instructions issued on Tuesday.

Adopted in June, the E.U. legislation provided specific exemptions for Bulgaria, Croatia, and other landlocked E.U. member states. These exemptions have been integrated into the recently issued U.S. guidelines on the execution of the price cap policy for Russian crude oil.

In particular, Bulgaria had the legal right to enter into contracts with Russia before June 4 for buying, importing, or transferring ocean-going crude oil and petroleum products between December 5, 2022, and December 31, 2024. These contracts were to be inked before June 4.

Croatia was authorised to purchase, import, or transfer vacuum gas oil originating from Russia between February 5, 2023, and December 31, 2023, if no alternative vacuum gas oil supply is available.

Russian oil Price Cap

The United States, G7 and European allies are close to reaching an agreement on a restriction on the price of Russian oil between $60 and $70 per barrel, informed sources told an American newspaper on Tuesday.

This figure is close to the price mentioned by Daniil Manaenkov, an economic forecaster at the University of Michigan, while commenting on a Frontier India article.

“With the price of Brent crude around $90/barrel, and the discount for Russian oil around $20-$30/barrel in recent months, a ceiling would have to be below $60/barrel. The estimates of the cost of production for Russian oil vary by source but are generally thought to be below $40/barrel. Hence, the likely ceiling is probably between $40 and $60 per barrel,” said Daniil Manaenkov.

According to the article, ambassadors from all 27 European Union states would convene later in the day to deliberate on the price cap. The introduction of the price cap should be decided by a unanimous majority of E.U. members, while the G7 will vote concurrently with the European Union.

John Kirby, the spokesperson for the National Security Council of the White House, stated on Tuesday that the European Union (E.U.) is still discussing the level of the Russian oil price ceiling and that the United States is in contact with its European allies and partners regarding the matter.

On November 21, Alexander Novak, the deputy prime minister of Russia, announced that Russia would no longer supply petroleum and oil products to countries that adhere to the notion of price limits. Instead, Moscow will restrict output or redirect supplies to friends with a market orientation.

Russia reaffirms its position as a dependable energy provider to the global market and the market standing of our partnerships with partners. Novak stated that the U.S. does not intend to deliver oil and petroleum products to nations that implement a price cap, followed by a reorientation of supplies to market-oriented partners or a reduction in production.

Since Russia initiated a military operation in Ukraine on February 24, Western nations have been searching for methods to limit Russia’s income from oil and gas exports. In September, the G7 finance ministers confirmed their plan to restrict the price of Russian oil and asked all nations to embrace the initiative. In October, the European Union imposed its eighth round of sanctions against Moscow, which included a legislative basis for establishing a price ceiling for marine supplies of Russian oil to third countries.


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