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U.S. ironing out energy sector disputes with Mexico worth $30 billion -ambassador

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© Reuters. Ken Salazar, U.S. Ambassador to Mexico, gestures during an interview with Reuters at his residence in Mexico City, Mexico, June 15, 2022. REUTERS/Edgard Garrido

MEXICO CITY (Reuters) – The United States and Mexico are working through disputes involving American companies in the Mexican energy sector worth more than an estimated $30 billion in investment, the U.S. ambassador to the country said on Wednesday.

In an interview with Reuters, Ambassador Ken Salazar said his government was making progress in resolving problems affecting U.S. businesses in Mexico, which range from operators of fuel terminals to generators of renewable energy.

“These 17 companies were companies that had very significant disputes with the Mexican government,” Salazar said.

Mexican President Andres Manuel Lopez Obrador has moved aggressively to redraw energy sector rules for the benefit of state oil company Petroleos Mexicanos (Pemex) and public power utility Comision Federal de Electricidad (CFE), arguing past governments skewed the market in favor of private capital.

However, that energy policy has put Mexico at odds with the United States and other top trading partners, causing ructions with a string of major corporate investors in the country.

Some of the projects in dispute are already moving forward, and the “proof will be in the pudding” as to how many of them can be sorted out under the current government, Salazar said.

Commodities

Why Russian oil and gas price cap is easier said than done

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© Reuters. FILE PHOTO: Model of petrol pump is seen in front of EU and Russian flag colors in this illustration taken March 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

LONDON (Reuters) – G7 leaders have agreed to study possible price caps on Russian oil and gas to try to limit Moscow’s ability to fund its invasion of Ukraine, G7 officials said on Tuesday.

The officials, who include U.S. Treasury Secretary Janet Yellen, say the measure will limit the price that Russia receives for energy while allowing Western consumers to continue getting supply.

Below are some of the most commonly asked questions about the price cap and challenges it could face.

HAS IT BEEN DONE BEFORE?

A somewhat similar mechanism was established as part of the oil-for-food programme by the United Nations in 1995 to allow Iraq to sell oil in exchange for food and medicine.

The programme, introduced by U.S. President Bill Clinton’s administration was meant to meet the humanitarian needs of ordinary Iraqis while preventing Saddam Hussein’s government from boosting military capabilities.

Oil buyers paid money into an escrow account run by BNP Paribas (OTC:BNPQY) bank. The money was used to pay for war reparations to Kuwait, U.N. operations in Iraq and Iraq was allowed to purchase regulated items with any remaining funds.

The programme suffered from widespread corruption and abuse.

While the United Nations was united in opposing Saddam Hussein’s government, the body is divided over Russia’s invasion of Ukraine, which Russia calls a “special military operation”.

China, India and Pakistan are among 35 countries that have refused to condemn Russia. China and India have become the biggest buyers of heavily-discounted Russian oil as Europe cut imports.

WHAT’S THE GOAL OF A BUYERS’ CARTEL?

Western officials say they want to encourage sales of Russian oil at levels slightly above production costs to ensure Russia’s earnings are reduced while it maintains production.

Today, Russia receives more revenue than before the invasion began on Feb. 24 as global price rises have offset the impact of sanctions.

Tamas Varga from oil broker PVM said the price cap idea amounted to evidence that outright bans on Russian oil have been counterproductive as Russian revenues have increased.

But creating a buyers’ cartel to starve Russia of petrodollars while alleviating inflationary pressure from oil prices is challenging.

“The big unknown is Vladimir Putin’s reaction,” said Varga.

If Russian President Vladimir Putin decides to reduce oil or gas exports the plan will backfire and lead to a rise in prices: “It is a nightmare scenario – both for Europe and Russia.”

The Kremlin said on Tuesday that Russian gas giant Gazprom (MCX:GAZP) could seek to revise its delivery contracts if Western countries implemented a price cap on Russian gas.

Kremlin spokesperson Dmitry Peskov said he could not comment on how much the move would cost Russia.

WHAT LEVEL FOR THE CAP?

With benchmark Brent prices at $110-$120 per barrel, Russian oil sells at heavy discounts of $30-$40 per barrel and Chinese and Indian buyers are snapping it up.

“G7 countries want to reduce Russian oil revenues and this implies a price cap well below what buyers are currently paying. Some campaigners advocate for a very aggressive reduction, pointing to Russia’s low production costs and arguing it would continue to sell oil at any price above this level,” said Richard Mallinson from Energy Aspects.

Russian production costs are $3-$4 per barrel and Russian firms could probably profit even if oil prices were $25-$30 per barrel.

The Dutch wholesale gas price for July, the European benchmark, has risen around 43% since the start of the year to $127.60 euros per megawatt hour.

European imports of Russian pipeline gas have dropped sharply after Gazprom this month reduced capacity of the Nord Stream 1 pipeline, which rus under the Baltic Sea to Germany, capacity to 40%.

The EU energy chief said on Monday that “serious disruption” to gas supplies from Russia is likely.

CAN THE CAP WORK VIA SHIPPING INSURANCE?

Imposing a price cap on Russian oil sales could be done via shipping insurance, Louise Dickson from Rystad and Mallinson said.

The International Group of Protection & Indemnity Clubs in London covers around 95% of the global oil shipping fleet.

Russian oil buyers could be offered a waiver from the ban on European shipping insurance, which takes effect in early December, if they are paying at or below the price cap.

However, there are many obstacles.

“The most obvious is that Russia might not agree to sell at those prices, particularly if the cap is very low and close to production cost,” said Dickson.

“In fact, Putin has already shown his willingness to withhold supplies of natural gas to EU countries that refused to meet payment demands”.

The next obstacle would be China, which could accept Russian insurance, said Dickson.

State-controlled Russian National Reinsurance Company (RNRC) has become the main reinsurer of Russian ships.

WILL CHINA AND INDIA COOPERATE?

India has provided safety certification for dozens of ships, enabling Russian oil exports.

“Russia and some buyers are already finding alternatives to European insurance markets, using a combination of local insurers and sovereign guarantees. So this mechanism would not force full participation in a price cap,” said Mallinson.

In addition, European insurers might not want to be responsible for monitoring the price cap and could decide to avoid covering such deals even if waivers are available, he said.

The EU would also need to amend the sanctions it passed at the end of May, which would require unanimous support.

“Given the difficult negotiations in May, some countries are worried about reopening this issue and giving Hungary and others another opportunity to push for concessions,” Mallinson said.

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G7 agrees to explore cap on Russian oil price – communique

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2/2

© Reuters. FILE PHOTO: Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. REUTERS/Tatiana Meel/File Photo

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By Andreas Rinke and Angelo Amante

SCHLOSS ELMAU, Germany (Reuters) – The Group of Seven economic powers have agreed to explore imposing a ban on transporting Russian oil that has been sold above a certain price, they said on Tuesday.

“We invite all like-minded countries to consider joining us in our actions,” the G7 leaders said in the communique.

The war in Ukraine and its dramatic economic fallout, in particular soaring food and energy inflation, has dominated this year’s summit of the group of rich democracies at a castle resort in the Bavarian Alps.

The G7 is looking at price caps as a way to prevent Moscow profiting from its invasion of Ukraine, which has sharply raised energy prices, taking the sting out of Western efforts to reduce imports of Russian oil and gas.

Russian oil export revenues climbed in May even as volumes fell, the International Energy Agency said in its June monthly report.

A ceiling on how much other countries pay Russia for oil would squeeze Russian President Vladimir Putin’s “resources that he has to wage war and secondly increase stability and the security of supply in global oil markets,” a senior U.S. administration official said on Tuesday.

G7 leaders have also agreed to push for a ban on imports of Russian gold as part of efforts to tighten the sanctions squeeze on Moscow, an EU official said on Tuesday.

The war, which has killed thousands and sent millions fleeing, entered its fifth month with no signs of abating.

Firefighters and soldiers searched on Tuesday for survivors in the rubble of a shopping mall in central Ukraine struck by a Russian missile.

TACKLING FOOD INSECURITY

G7 nations want to crank up pressure on Russia without stoking already soaring inflation that is causing strains at home and savaging developing nations.

There is a “real risk” of multiple famines this year as the Ukraine war has compounded the negative impact of climate crises and the COVID-19 pandemic on food security, United Nations chief Antonio Guterres said last week.

G7 leaders pledged $4.5 billion on Tuesday to fight global hunger, according to the communique.

The United States will provide over half of that sum, which would go to efforts to fight hunger in 47 countries and fund regional organisations, a senior U.S. official said.

The G7 is attempting to rally emerging countries, many with close ties to Russia, to oppose Putin’s invasion of Ukraine, and invited five major middle-and-low income democracies to the summit to win them over.

Some are more concerned with the impact of soaring food prices at home, blaming Western sanctions, not Russia’s invasion of one of the world’s top grain producers and blockade of its ports, for the shortages.

Asked if G7 leaders had found a way to let Ukraine export its grain, British Prime Minister Boris Johnson said on Tuesday: “We’re working on it, we’re all working on it”.

G7 leaders also committed on Tuesday to creating an international “Climate Club” to forge cooperation on climate change and made pledges on decarbonising industrial sectors.

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Commodities

G7 agrees to study Russian energy price caps, raise $5 billion to tackle hunger

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© Reuters. FILE PHOTO: Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. REUTERS/Tatiana Meel/File Photo

2/2

By Angelo Amante and Philip Blenkinsop

GARMISCH-PARTENKIRCHEN, Germany (Reuters) – G7 leaders have agreed to study placing global price caps on imports of Russian energy to curb Moscow’s ability to fund its invasion of Ukraine and to contribute up to $5 billion to address global food insecurity, officials said on Tuesday.

The war in Ukraine and its dramatic economic fallout, in particular soaring food and energy inflation, has dominated this year’s summit of the group of rich democracies at a castle resort in the Bavarian Alps.

The European Union will explore with international partners ways to curb Russian energy prices, including the feasibility of introducing temporary import price caps, a section of the final G7 communique seen by Reuters said. The officials said this meant both oil and gas.

The G7 has been debating price caps as a way to prevent Moscow profiting from its invasion of Ukraine, which has sharply raised energy prices, cushioning the impact of Western moves to reduce imports of Russian oil and gas.

Russian oil export revenues climbed in May even though export volumes fell, the International Energy Agency said in its June monthly report.

A cap on the price other countries pay Russia for oil would squeeze Russian President Vladimir Putin’s “resources that he has to wage war and secondly increase stability and the security of supply in global oil markets”, a senior U.S. administration official said on Tuesday.

The idea is to tie financial services, insurance and the shipping of oil cargoes to a cap on Russian oil prices. So if a shipper or importer wanted these services, they would have to commit to the Russian oil being sold for a set maximum price.

Italy, whose economy is reliant on Russian energy, pushed to extend the price cap to gas.

Italian Prime Minister Mario Draghi last week warned of the need to tackle energy prices to contain inflation and said the main objection to a gas cap from fellow Europeans was fear it could lead Russia to reduce supplies further.

France has said the price cap mechanism should extend beyond Russian products to reduce prices more broadly, including for the G7 nations that are looking to source energy from elsewhere.

France supports the language in the final communique but it remains unclear how such a mechanism would work and needs “thorough” discussions, a French official said.

G7 leaders have also agreed to push for a ban on imports of Russian gold as part of efforts to tighten the sanctions squeeze on Moscow, an EU official said on Tuesday.

Britain, the United States, Japan and Canada agreed at the start of the G7 summit on Sunday that they would ban imports of newly mined or refined Russian gold, while the European Union expressed some reservations.

TACKLING FOOD INSECURITY

G7 nations, which generate nearly half the world’s economic output, want to crank up pressure on Russia without stoking already soaring inflation that is causing strains at home and savaging developing nations.

There is a “real risk” of multiple famines this year as the Ukraine war has compounded the negative impact of climate crises and the COVID-19 pandemic on food security, United Nations chief Antonio Guterres said last week.

The G7 will commit up to $5 billion to improve global food security, the senior U.S. official said, with the United States providing over half of that sum, which would go to efforts to fight hunger in 47 countries and fund regional organisations.

The G7 is attempting to rally emerging countries, many with close ties to Russia, to oppose Putin’s invasion of Ukraine, and invited five major middle-and-low income democracies to the summit to win them over.

Some are more concerned at the impact of soaring food prices on their populations, blaming Western sanctions, not Russia’s invasion of one of the world’s largest grain producers and blockade of its ports, for the shortages.

Asked if G7 leaders had found a way to let Ukraine export its grain, British Prime Minister Boris Johnson said on Tuesday: “We’re working on it, we’re all working on it”.

The G7 leaders have also agreed to take a more coordinated approach to challenging China’s “market-distorting” practices in global trade, the U.S. official said.

“You’ll see leaders release a collective statement, which is unprecedented in the context of the G7, acknowledging the harms caused by China’s non-transparent, market-distorting industrial directives,” the official said on Tuesday.

Among their commitments was one to accelerate efforts to remove forced labour, including state-backed forced labour, from global supply chains, the official added

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