US and other Western officials are finalizing a plan to impose a price cap on Russian oil despite warnings that attempting to implement the policy could send global prices soaring, Reuters reported on Wednesday.
A final price has not yet been determined, but one person told Reuters it might be between $63-$64 per barrel, the historical average price for crude. Treasury Secretary Janet Yellen has previously said a price cap of around $60 would be enough for Russia to keep producing oil.
But Russia has warned that it will retaliate against the price cap and the plan also relies on the cooperation of China and India, which have both become major buyers of Russian crude. If Russia retaliates by slashing oil production, JPMorgan Chase analysts warned prices could skyrocket to “stratospheric” levels.
Despite the risk, the US and its allies are planning to impose the cap on December 5, and a final price is going to be set in the coming weeks. Bloomberg reported that US officials were forced to scale back on the price cap plan due to skepticism from investors and market issues, but a Biden administration says it’s still going through with the plan.
“The White House and the administration are staying the course on implementing an effective, strong price cap on Russian oil in coordination with the G7 and other partners,” National Security Council spokeswoman Adrienne Watson told Reuters.
The World Bank on Wednesday said that the price cap plan was an “untested mechanism” that could reduce the flow of oil from Russia. In order for the plan to be effective, the World Bank said it needs the participation of developing countries and emerging markets.