Seoul asked to join the U.S.-led scheme of capping Russian fuel prices

[Graphics by Song Ji-yoon]

Seoul has been asked by Washington to join an ambitious scheme under making by G7 nations on putting a cap on Russian crude oil prices in additional sanction to dent the primary source of revenue for the nation and financing for its drawn-out war with Ukraine, according to government sources Wednesday.

Leaders of the G7 advanced economies on Tuesday reached an agreement to introduce a price cap on Russian oil as the country has been generating revenue higher than before the war through sale of fuel to countries that have not joined the U.S.-led ban.

The idea of putting a ceiling on the prices of Russian fuel to hurt its profitability would require strong cooperation from global buyers.

Although Russian produce makes up a small share in South Korean fuel imports, Seoul dilly-dallied in joining the U.S.-led sanctions including import ban on Russian crude and natural gas earlier this year in fear of the move upsetting the already rocky international energy market.

President Yoon Suk-yeol who attended the North Atlantic Treaty Organization Summit in Spain for the first time as a South Korean leader is said to have been invited to join what could be a buyer cartel.

Seoul is said to have saved response for now until the plan details out, according to sources.

The official request could be made when U.S. Treasury Secretary Janet Yellen holds a meeting with her counterpart Choo Kyung-ho in Seoul on July 19-20. The idea is said to have come from Yellen.

“The U.S. isn’t pressuring, but actively encouraging Korea to take part in the move,” said an unnamed government official. “It is not easy for Korea to make a decision, given the complexity of the issue.”

There will be limited short-term impact on energy imports as imports of Russian crude have dwindled from about 5 percent after the Ukraine crisis. In May, Russian oil accounted for less than 1 percent of entire imports.

“When we joined international sanctions against Russia, we didn’t impose separate sanctions against crude imports but industry players voluntarily sought replacements,” said an unnamed official from the Ministry of Trade, Industry and Energy.

Korea had remained passive about joining U.S.-led Foreign Direct Product Rules (FDPR) that restricts exports of advanced technology products to Russia in March and almost could not make the list of exempted countries.

The latest oil price cap sanction agreed by western countries come as economic sanctions against Russia have led to global inflation led by a surge in oil prices.

Oil prices have reached $120 per barrel this month which resulted to massive current account surplus in Russia and strong ruble currency.

The idea is to reject shipping insurance of cargoes that transport Russian oil whose price is higher than the capped price. Whether or not the sanctions will be a success is to be seen as it involves not only participating countries but also major petrochemical players, insurers, and shippers.

Russia’s restriction on crude exports in retaliation to the western move could further fan oil prices.

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