A US government department is investigating whether foreign banks operating within the US adhered to the G7's price limit of $60 per barrel for Russian oil, according to an anonymous source. The Office of Foreign Assets Control (OFAC) under the US Treasury Department has requested information on Russian oil purchases, includi
ng those made by Indian entities over the past few months.
Indian banks operating in the US, such as State Bank of India (SBI), Bank of Baroda, and Bank of India, are included. This price cap on Russian seaborne crude oil was introduced by the G7 in December to restrict Russia's revenue from exports, impacting its military budget.
The restriction prevents the purchase or import of crude from Russia at prices exceeding the price cap. This move is part of the West's strategy to isolate Russia and ensure a stable supply to stabilize global oil prices, which surged after Russia's invasion of Ukraine in February 2022.
"The oil marketing companies (OMCs) have shared the information with SBI. OFAC had asked for this information from banks having operations in the US," the source added.
Earlier, it was reported that SBI is taking steps to avoid violating US sanctions by inadvertently processing payments for Indian oil refiners that may have purchased Russian oil above the US-led coalition's $60 per barrel price cap.
This development comes amidst rising global crude oil prices over the last three months following a decrease from last year's multi-year highs. Currently, the Brent crude oil contract for December is trading at $93.49 per barrel, an increase of 1.20% from the previous close, and 17% higher than the levels seen in July.
Although the OFAC has requested details, Indian banks and OMCs are unlikely to violate sanctions or the price cap regulations since oil is available from other sources at a discount, including Iraq, one source stated.
"Indian banks will not do transactions above the price cap because if they were to do so, their overall businesses may be impacted," said Prashant Vashisht, Vice President of Corporate Ratings at Icra.
India and China have become major importers of Russian crude since February 2022 after the supplier began offering deep discounts. Presently, discounts on Russian oil range from $13 to $15 per barrel compared to the international market price, according to traders.
In August, the import value of Russian crude oil was approximately $74 per barrel when India imported 7.63 million tonnes of Russian crude oil worth $4.15 billion, according to data from the commerce ministry. This cost includes freight, insurance, and customs duty, which are not covered by the price cap mechanism.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, have announced successive production cuts over the past few months, leading to higher oil prices. Additionally, the recent Israel-Hamas conflict and the potential for it to escalate into a regional conflict have further increased prices.
Inquiries made to the Ministries of Petroleum and Natural Gas and External Affairs, the US Treasury Department, SBI, Bank of Baroda, Bank of India, Indian Oil Ltd, Hindustan Petroleum Corp. Ltd, and Bharat Petroleum Corp. Ltd remained unanswered at the time of press. On October 12, OFAC imposed sanctions on two retail entities, identifying two of their vessels as "blocked property."
These sanctions are in place for these entities for transporting Russian crude oil above the price cap agreed upon by the coalition service providers.
"This action underscores the Treasury Department's commitment with its international partners to responsibly reduce Russian government oil profits and constrain the Russian war machine. The Treasury and the coalition will remain vigilant in monitoring the compliance of shipping companies and vessels participating in Russian oil trade while using the services of Price Cap Coalition service providers," OFAC said in a statement.
OFAC has also issued an advisory on behalf of the Price Cap Coalition outlining "specific best practices" in the maritime oil industry to enhance compliance with price caps on crude oil and petroleum products of Russian Federation origin, established by the G7, the European Union, and Australia.
