Senators Drafting Bill to Sanction Any Institution Skirting Russian Oil Price Cap

Two senators plan to introduce a bill that would impose mandatory sanctions against any foreign financial entity not complying with the G-7's and EU’s upcoming price cap on Russian oil. The bill, which is still being drafted, has bipartisan support on Capitol Hill but not from the Treasury Department, with one official suggesting the legislation is unnecessary.

The bill, being drafted by Sens. Pat Toomey, R-Pa., and Chris Van Hollen, D-Md., would require the administration to sanction any “foreign financial institution worldwide” that participates in any transaction involving Russian oil sold above the price cap, a figure still being determined by G-7 members (see 2209120028). Toomey said he hopes the bill, which would be the first major bipartisan sanctions legislation introduced since Russia's invasion of Ukraine in February, is “enacted as soon as possible so that Russia can no longer profit from the oil sales funding its war in Ukraine.”

Speaking during a Sept. 20 Senate Banking Committee hearing, Toomey said the sanctions will be designed to “complement” the Biden administration’s and G-7’s price cap scheme. While he and Van Hollen said they support the idea of a price cap, they said their legislation will help address several unanswered questions, such as how the U.S. will enforce the cap and ensure China, India and others don’t “skirt the price cap for their own gain.”

Van Hollen said he can “easily imagine” Russian President Vladimir Putin rejecting the price cap and instead negotiating with other countries to sell oil just above the cap. “The idea behind this legislation is to provide a uniform backstop worldwide, and say to any financial institution that's thinking about financing or participating in a transaction to purchase Russian oil above the price cap set by the G-7 that they will face penalties,” Van Hollen said.

But the existing price cap plan, still under development among G-7 countries, assumes that certain countries, including China and India, won't participate, said Elizabeth Rosenberg, Treasury’s assistant secretary for terrorist financing and financial crimes. Even if China doesn’t adhere to the price cap, it will be able to leverage the cap to negotiate lower prices for its purchases of Russian energy, Rosenberg said, which will help deprive Moscow of oil revenue. “We're seeing that already,” she said during the hearing. “Asian purchasers have used the price cap in order to leverage lower prices, cut rate prices for Russian energy. That's this policy already at work.”

And even if China and other countries don’t choose to directly comply with the price cap, they may still end up doing so if they use European maritime insurance companies, Rosenberg said, which will be subject to the cap and its prohibitions. She said that about 80% to 90% of maritime insurance is concentrated among European providers.

“It's possible that [China and others] could purchase that oil below the cap using G-7 services,” Rosenberg said. “India, for example, has a powerful interest in purchasing some of that oil below the price cap in order to take advantage of those services, which provide more reliability.”

But Toomey said China, India and others also can simply use their own service providers. “The Chinese and the Indians, they're quite capable of expanding the role of their indigenous service providers,” he said. “It might not be quite as convenient as the existing regime, but they're quite capable of insuring and brokering and financing oil sales with indigenous companies and capabilities.”

Toomey said his legislation would ensure other countries are dissuaded from taking other routes to buy Russian oil above the cap. If the price cap works, and “Indian and Chinese buyers end up paying no more than the cap price, then our sanctions legislation is kind of moot. It'll sit there as a backstop without doing any harm, without being implemented,” Toomey said. “But if it doesn't work -- and let's be honest, the Russians have taken in a lot of revenue we didn't fully anticipate -- then we'd have a backstop.”

Asked if Treasury sees a need for additional sanctions leverage to enforce the price cap beyond G-7 countries, Rosenberg said the U.S. and its allies already “have a good deal of leverage and authorities right now” to incentivize other countries to buy Russian oil “at cut-rate prices.” The U.S. also has enough “authorities that we can bring to bear for the purposes of enforcement,” Rosenberg said. “At this time we have sufficient authorities in order to pursue those avenues.”

Van Hollen disagreed, saying a clear threat of sanctions could ensure better compliance with the cap. “I believe one of the benefits of putting this sort of threat of sanctions out in advance is: Everybody is on full alert that this is the law and this will apply,” Van Hollen said. “But I do think there's a great benefit to having a worldwide backup so that Russia does not try, as it's bound to do, to play countries against each other, if those countries know they're all going to be subject to the same uniform sanction penalty.”