Adeyemo Defends Oil Price Cap

Speaking at the Center for a New American Security on June 15, 2023, Deputy Secretary of the Treasury Wally Adeyemo reiterated the United States' support for Ukraine in the face of what he termed Russia's "illegal invasion." Adeyemo outlined the pivotal role of the Treasury Department in the financial warfare strategy against Russia, stating, "We at the Treasury Department are working to deny Russia the weapons and material they need to fight their war of choice." He elaborated on the two-pronged approach aimed at destabilizing Russia's military industrial complex.

Detailing the strategy, Adeyemo said it is "first, to deny the Kremlin’s ability to use the funds they have to buy the weapons they need. And second, to reduce those funds and force Putin to make hard choices between funding his war or propping up Russia’s economy."

The speech placed particular emphasis on the price cap policy, which Adeyemo praised for causing a "significant decline in Russian revenue." Introduced by the G7, EU, and Australia, this policy restricts the price Russia can charge for crude oil if it involves services from a coalition country. "This creates a powerful incentive to comply with the cap," Adeyemo said.

Despite skepticism at the outset, Adeyemo hailed the price cap as successful, saying, "Russian government oil revenues in the first five months of 2023 are down nearly 50 percent from a year prior. This decline in oil revenue has occurred despite the fact that Russia is exporting more crude oil today than it did at the onset of the war."

In reaction to these policies, Adeyemo noted that Russia's Finance Minister has pointed to the price cap as a cause of "reduced tax revenues and a ballooning budget deficit." The Russian government is considering changes to its oil taxation system in response to these financial pressures.

Adeyemo also spoke about Russia's moves to establish its own seaborn oil ecosystem. "The Russian central bank has guaranteed about $9 billion in a reinsurance scheme intended to replace western reinsurance," he said.

While acknowledging Russia's efforts to evade the price cap and other sanctions, Adeyemo vowed that the U.S. is committed to "preventing evasion in collaboration with our coalition partners and the private sector." He issued a warning to entities supporting Russia's war effort: "I want to be clear to companies, individuals, and countries that we and our coalition will hold accountable those who provide material support for Russia’s war effort."