Economists back Russian oil price cap in letter to Yellen - Reuters

WASHINGTON, Oct 11 (Reuters) - A price cap on Russian seaborne oil deliveries being developed by the United States and G7 rich countries could significantly impact Russia's revenues while encouraging Moscow to continue to produce oil, sixteen economists from top U.S. and British universities said in a letter to U.S. Treasury Secretary Janet Yellen on Tuesday.

The cap, which the Group of Seven countries last month agreed in principle, should lower Russia's revenues by strengthening the negotiating position of any buyers, economists including Simon Johnson at the Sloan School of Management at the Massachusetts Institute of Technology, Harvard University's Jason Furman and the University of Chicago's Ryan Kellogg said in the letter, which was reviewed by Reuters.

"While we do not expect all trades will be performed under the price cap, its existence should materially increase the bargaining power of private and public sector entities that buy Russian oil," they wrote.

The European Union last week approved its eighth batch of sanctions against Russia for its invasion of Ukraine including the price cap, but said more work was required for its implementation. read more

Concerns about the uncertainty created by the price cap are one reason Saudi officials backed OPEC+ output cuts last week.

U.S. officials on Tuesday said work was continuing on the measure. read more

The price cap would maintain economic incentives for Russia to keep producing at current volumes, while reducing its revenues, the economists wrote.

Russia still supplied oil to world markets in April 2020, when the Brent benchmark was close to $20 a barrel, because that price was above the cost of production in many or most existing Russian oil fields, they noted.

The price of Brent now is around $96 per barrel. Russia receives less due to the “Urals discount" reflecting the impact of Russia's invasion of Ukraine, a gap that has shrunk in recent weeks.

"The oil price cap proposal would effectively institutionalize the Urals discount and consequently further lower the dollar value of the Russian government’s primary revenue stream," they said.

Daniel Berkowitz at the University of Pittsburgh; Severin Borenstein, Yuriy Gorodnichenko, Carl Shapiro and Anastassia Fedyk at the University of California, Berkeley and Rick Van der Ploeg at the University of Oxford were among the signatories.

Reporting by Andrea Shalal; Editing by Heather Timmons and Marguerita Choy

Our Standards: The Thomson Reuters Trust Principles.

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