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An unprecedented price cap on Russian oil hatched by the U.S., EU and other G-7 nations is nearly a week old. Here’s how it’s going.
A refresher: The deal bans Western companies from shipping or insuring Russian oil unless it’s sold for less than $60 per barrel. The idea is to hammer Russia’s ability to finance its invasion of Ukraine, while avoiding an economic shock from taking its oil off the market.
How it’s going so far: Russia’s oil exports appear to have dipped in the wake of the announcement and oil tankers are snarled near Turkey. But any loss of supply hasn’t driven an immediate global price spike.
Why Treasury is hopeful: Biden administration officials see early evidence that the plan is hitting its two main metrics — maintaining oil market stability while limiting a key source of funding for Russia’s budget. The latter is harder to gauge, but a Treasury official said the department is optimistic about signs that Russian revenue is being impacted.
Russian central bank analysts said in a report Wednesday that the price cap and an EU ban on seaborne Russian oil could “significantly reduce” Russia’s economic activity in the coming months. A Wall Street Journal story this week outlined how the $60 per barrel cap is above Russia’s $40 per barrel cost of production but below a $70 per barrel price the country needs to balance its budget.
The Treasury official said the department is comfortable with major importers purchasing discounted oil outside the cap if it advances objectives of keeping markets well supplied and cutting into Russian revenue
Reality check: Oil analysts say it’s too early to declare victory for a plan that has no precedent in history.
Raymond James managing director Pavel Molchanov predicts the impact on Russia’s budget “will be mild.” Washington and Brussels don’t have direct jurisdiction over what businesses do in China, India or Turkey, and so changing their behavior may require secondary sanctions or diplomacy.
“Its effectiveness is in question,” he said. “It is very much a question mark.”
Energy Aspects head of geopolitics Richard Bronze said the firm has heard confusion among its clients about how different sanctions elements interact or don’t.
“The policies and the intentions are in the right direction but it does feel like what has been created is an incredibly uncertain landscape that’s persisted for all of this year,” he said. “In that environment, investment in energy supply becomes harder.”
The view from the Hill: Lawmakers also have concerns. Sens. Chris Van Hollen (D-Md.) and Pat Toomey (R-Pa.) are proposing legislation that would impose secondary sanctions on foreign entities involved in the purchase of Russian seaborne petroleum above the price cap, which would be lowered over a period of three years.
“It’s too early to say” if the cap has been effective, Van Hollen said in an interview. “I do think ultimately we may need a sanctions backup to enforce it.”
Finally, it’s Friday — MM readers sent a few recommendations for your weekend listening: Fontaines D.C., Desert Sessions, Spirits of Leo, Plight and Vega Maestro. Mark Calabria made the fair point that Def Leppard’s Pyromania album is probably better than Hysteria, but I think we all agree that, either way, Photograph is hands down the band’s best song. It was great hearing from you this week. Please keep in touch. I’m [email protected] and Sam Sutton is [email protected].
Breaking: SBF agrees to testify — FTX founder Sam Bankman-Fried said Friday he was willing to testify at next Tuesday’s House Financial Services hearing on the crypto exchange’s collapse.
“I still do not have access to much of my data — professional or personal,” he said on Twitter. “So there is a limit to what I will be able to say, and I won’t be as helpful as I’d like. But as the committee still thinks it would be useful, I am willing to testify on the 13th.”
House Financial Services said in a memo Thursday that the other witness for its FTX hearing will be John Ray, who became CEO of the company when it filed for bankruptcy.
Bankman-Fried riled Senate Banking Chair Sherrod Brown after his lawyers declined to respond to the committee’s invitation to testify by a Thursday deadline. Brown on Wednesday threatened SBF with a subpoena.
“We will continue to work on having him appear before Congress as detailed in Wednesday’s letter,” Brown and committee ranking member Toomey said in a joint statement Thursday night.
Senate Banking has scheduled actor-turned-crypto skeptic Ben McKenzie and American University professor Hilary Allen as witnesses at its FTX hearing next Wednesday.
Ouch: Republicans grumble over subcommittee delay — House Minority Leader Kevin McCarthy has asked incoming committee chairs to postpone announcements about their subcommittee chiefs until the beginning of next year, in a move widely seen as a maneuver to help shore up his bid for speaker.
The edict is frustrating a number of Republicans, including committee leaders who hoped to dole out subcommittee chair assignments to senior members this month and begin work on next year’s agenda.
“It’s a kick in the nuts,” one House Republican told MM.
Lenders want FDIC to slow anti-redlining revamp — From our Victoria Guida: Community banks are raising alarms after Acting FDIC Chair Marty Gruenberg said last week that he expects regulators to finalize their overhaul of the Community Reinvestment Act early next year.
Anne Balcer, public policy chief at the Independent Community Bankers of America, told POLITICO that’s too quick of a timeframe for the agencies to properly absorb feedback on the complex, nearly 700-page regulation. CRA requires banks to lend equitably in communities they serve.
The proposal would mean 80 percent of ICBA’s members would have a score of “low satisfactory” based on new retail lending requirements, she said, including those that currently have the highest grade of “outstanding.” That means they’ve never been given reason to believe their efforts have been insufficient, she added. “A lot of this doesn’t feel like we’re modernizing,” Balcer said. “At some point it’s almost punitive.”
MM sidebar: According to an analysis by NCRC, CRA requirements would also get easier for 779 institutions that would be reclassified as smaller banks and face a less stringent test.
Washington doesn’t know what to do with Congress’s crypto influence scandal — From POLITICO Magazine’s Michael Schaffer: “An optimist might think that at this time of constant political warfare, a good, old-fashioned both-sides-do-it scandal is just what an exhausted country needs — a chance to sing kumbaya and remind ourselves that, however much we may disagree about issues, avarice is an enemy we can all fight together.
“But the political maneuvering over crypto during the past few weeks suggests that the modern capital’s polarized political-media ecosystem can’t do much with a potential scandal if there’s no partisan advantage to drive it.”
SEC presses companies to disclose crypto exposure — From our Declan Harty: “Wall Street’s top regulator is warning public companies that they may need to disclose the ‘direct or indirect impact’ their businesses have faced from the havoc that’s hit cryptocurrency markets in recent weeks.”
SBF taps former Bloomberg aide — From Sam: FTX founder Sam Bankman-Fried’s inner circle now includes a longtime political consultant and aide to former New York City Mayor Mike Bloomberg. Mark Botnick, a New York political operative and one-time Bloomberg spokesman, has been advising the former crypto executive through a series of high-profile media appearances following the collapse of FTX.
EU ropes crypto, NFTs into tax-transparency battle — Our Bjarke Smith-Meyer in Brussels: “Cryptocurrency companies will have to disclose who owns what digital assets on their platforms from 2026 under new tax-transparency measures proposed [Thursday] by the European Commission. …
“The rules will also target some trading platforms for online collectibles, known as non-fungible tokens.”
Acting SEC inspector general steps down — From Declan: Nicholas Padilla Jr. has retired from the SEC’s Office of the Inspector General. Two months since releasing a report that highlighted agency staff concerns about their workload, Padilla left the SEC in November after hitting mandatory law enforcement retirement requirements, an agency spokesperson said.
“His retirement had absolutely nothing to do with any of the substantive work of the Office of the Inspector General,” the spokesperson said.
Padilla is one of a handful of senior OIG officials who has rotated through as acting SEC inspector general in 2022, as the commission works to hire someone for the position full time. Long-time inspector general Carl Hoecker retired from the agency in May.
OCC warns banks on cyber threats — From Victoria: “The Office of the Comptroller of the Currency on Thursday warned banks to be vigilant against cyberattacks amid heightened geopolitical tensions.
“In its semiannual report on risks facing the banking system, the agency cited an uptick in ransomware attacks targeting companies that provide services for banks.”
CFPB accord would give most employees raises — From our Katy O’Donnell: “The union representing CFPB employees has reached an agreement with agency management on compensation after two and a half years of tense negotiations. Some 88 percent of union employees would get a raise under the deal, with an average raise of $17,488, according to the union.”
Incoming Gen Z lawmaker can’t find housing in Washington — Bloomberg: “Maxwell Alejandro Frost had his apartment rental application denied by a Washington, DC, landlord, the representative-elect said in a tweet. Frost, who is set to make $174,000 a year as a freshman Congress member, said he applied to an apartment after he gave a prospective landlord notice that his credit score was ‘really bad.’”