Biden advisor says oil price cap is working as Russia takes economic hit

The Group of Seven’s oil price cap scheme intended to limit Russian oil export revenues is working “so far so good,” according to Amos Hochstein, special presidential coordinator to President Joe Biden.

“As oil prices have come down, there’s no doubt that the price cap has, so far, and there’s a long way to go, as we sit today, achieved our interest, which was to have continued supply of oil on the market to support economic growth while limiting the value that oil makes for Putin,” he told CNBC’s Hadley Gamble in Abu Dhabi on Friday.

The price cap initiative was introduced on Dec. 5, when the EU stopped taking Russian crude oil. The price scheme requires buyers outside of the G7 using Western services such as maritime routes, insurance and financing to pay no more than $60 per barrel for seaborne Russian crude oil. 

EU countries will no longer be able to access seaborne Russian oil products as of Feb. 5.

President Vladimir Putin last month announced Russia would stop the supply of crude oil and oil products for five months to any nation that adhered to the cap, starting on Feb. 1. The retaliatory move will be followed by a separate ban linked to refined oil products.

Hochstein said that, while the scheme was still in its early days, “the fact that the discount on Russian oil has widened is a good thing, we hope that continues. We’ll see where it takes us.”

He did not specify how much the U.S. believes the price ceiling initiative is costing Russia. Finland’s Centre for Research on Energy and Clean Air estimates this toll is at €160 million ($172 million) a day.

The plan faced significant skeptism from some analysts, while it was sketched out by the G-7 and its ally Australia.

Former U.S. Treasury Secretary Steve Mnuchin said the initiative was “not only not feasible, I think it’s the most ridiculous idea I’ve ever heard.”

“I’m glad that where everyone doubted the price cap would work, I think sometimes people have a tendency to think if it’s not been done before it’s not possible. I think the G7 got together, it’s part of the unity of the G7, and I think so far so good,” Hochstein said.