Treasury Secretary Janet Yellen said it’s “very likely” that European sanctions will force Russia to offer some of its crude oil exports at a price set by the US and its allies, if Moscow wishes to prevent a shut-in of some supplies. 

“They’re going to be looking for buyers, and we think they’re going to have a hard time selling all of it,” Yellen said Saturday in an interview with Bloomberg News. “Our estimation is there would be some shut-in on Dec. 5 unless they’re willing to accept a price at or below the cap for buyers around the world.” 

On Dec. 5 the European Union will impose a ban on seaborne imports of Russian crude. On the same day, the EU and UK will prohibit their companies from providing shipping, trade finance and insurance for tankers carrying Russian oil unless the shipments are priced below a cap. The cap level – which has not yet been agreed – will be set by a coalition that includes Group of Seven governments and the EU.

Several large oil importers, including China and India, have said they will continue to purchase Russian oil, and with fewer buyers on the market, they’re expected to see bigger discounts. Together with Moscow, they should be able to arrange the shipping and financial services necessary to deliver substantial amounts of Russian oil. Russia is currently exporting about 3.6 million barrels a day by sea. 

But if that shipping and insurance capacity is exhausted, those same buyers will have to secure deals at the capped price in order to access European services and arrange for delivery of additional supplies.

Russian officials including President Vladimir Putin have said Moscow would refuse to sell oil to any countries participating in the price cap. They haven’t said whether they would refuse any sales at that price to buyers outside the cap coalition who have no other way of securing delivery.

US Concerns

The US has for months worried the Dec. 5 EU sanctions – designed to further punish Russia for its war in Ukraine – would backfire by trapping substantial amounts of oil in Russia, causing global prices to spike. The Treasury proposed the price cap as a workaround, allowing Russian oil to stay on the market, but at a price that would reduce Moscow’s revenues.

However, if Russia rejects any potential sale at the cap price it could provoke the very outcome the US has sought to avoid.

Still, oil markets have so far not been upended by uncertainty over how Moscow will respond -- possibly because oil traders believe Russia will be able to unload all its oil without European and UK services. 

“Some people feel Russia will not have trouble finding non-Western ships and services,” Yellen said. “That’s not our best guess, and I think if you read some of the more thoughtful and detailed analysis, you’ll see that knowledgeable people are coming to the same conclusion we have.”

Yellen declined to comment on where the price for crude would be set by the coalition or when, other than to say it would happen with time enough to implement the program. Global benchmark Brent crude futures on Friday settled at $95.99 a barrel.