VINACHEM

The price cap to be imposed on Russian oil will not be applied to crude that is "significantly transformed" outside of Russia, the US Treasury Department announced.

"If, however, after clearing customs, the Russian oil is taken back out on the water (i.e., using maritime transport) without being substantially transformed outside of the Russian Federation, the price cap still applies," the Treasury Department said on Tuesday. "This means any covered services, as listed in the determination, can only be provided by US service providers if such Russian oil is sold at or below the relevant price cap."

Once crude oil is substantially transformed in a jurisdiction other than Russia, it will not be considered to be of Russian origin and so the price cap would no longer be applied, the Treasury Department said.

"Thus, a refiner in a jurisdiction that has not banned the import of Russian oil can purchase crude oil at or below the price cap and rely on US service providers for services related to the maritime transport of that crude oil," it said.

"In addition, such a refiner can subsequently refine the crude oil and then export the refined oil via marine transport, including with the use of US service providers, without that refined oil being subject to the price cap. OFAC does not consider blending of crude oil alone to be substantial transformation for the purpose of the determination."

The department further noted in its bulletin that the US would not import Russian oil under the newly-revealed price cap plan adopted by Washington and allies.

Transactions related to the importation of Russian oil into Bulgaria, Croatia, or any landlocked member of the European Union has also been cleared under the updated Tuesday guidance.

The EU regulation, adopted in June, contained several exemptions with respect to Bulgaria, Croatia and any landlocked EU member states, which have been incorporated in the newly published US guidance on the implementation of the price cap policy on Russian crude oil.

Specifically, Bulgaria was authorized to execute deals concluded before June 4 contracts for the purchase, import, or transfer of seaborne crude oil and petroleum products from Russia between December 5, 2022 and December 31, 2024.

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

Starting December 5, the EU also licensed any landlocked member of the bloc to purchase Russian seaborne oil if the supply of crude oil by pipeline from Russia is interrupted until the supply is restored or until the Council of the EU rules to terminate this exemption.

The Treasury's newest guidance on Russian oil transport comes after earlier US media reports indicated that Washington and company were weighing a possible Russian oil price cap of $60 to $70 per barrel.

US & Allies Close to Agreement on Russian Oil Price Cap at $60-$70

The United States and its G7 and European allies are close to agreeing on a Russian oil price cap at $60-$70 per barrel later on Wednesday, American newspaper reported on Tuesday, citing sources in the know.

Later in the day, ambassadors from all 27 European Union states will meet to decide on the price cap, the report said. The decision to introduce the price cap should result from a unanimous vote by the EU members, while the G7 will vote in parallel to the European bloc.

Meanwhile, White House National Security Council spokesman John Kirby said on Tuesday that the European Union (EU) is still deliberating on what the Russian oil price cap level should be and the United States is in touch with its European allies and partners on the issue.

“I'm not going to get ahead of the EU in terms of what the cap actually is. They are still deliberating on that,” Kirby said during a press briefing. “We are in touch with our EU partners about their progress towards this of course and trying to be as supportive as we can be, particularly in terms of the [price cap] implementation.”

f the countries agree on the terms of the price cap, it will be introduced starting December 5.

Russian Deputy Prime Minister Alexander Novak stated on November 21 that Russia will not supply oil and petroleum products to countries that will apply the price cap principle, Moscow will redirect supplies to market-oriented partners or reduce production altogether.

"Russia confirms its status as a reliable energy supplier to the world market and the market status of our relations with partners. In this regard, we do not plan to supply oil and petroleum products to countries that will apply the principle of a price cap with the subsequent reorientation of supplies to market-oriented partners or with a production reduction," Novak said.

Western countries have been seeking ways to limit Russia's income from oil and gas exports since the country launched a military operation in Ukraine on February 24. In September, the G7 finance ministers confirmed their intention to impose a price cap on Russian oil and urged all nations to support the initiative. In October, the European Union introduced the eighth package of sanctions against Moscow, which included a legislative basis for setting a price cap for maritime shipments of Russian oil to third countries.