Yellen Pitches Russian-Oil Price Cap to Chinese Counterpart

“They listened and were prepared to have further discussions with us about it,” Ms. Yellen said.

China along with India are two critical targets in Ms. Yellen’s quest to create a cap on the price of Russian oil. Both countries continue to purchase large amounts of Russian oil and have refrained from joining Western efforts to sanction Russia after its invasion of Ukraine, with China earlier this year signing a broad cooperation agreement with Russia.

The U.S. is seeking to leverage Western control of insurance and financing of oil shipments to effectively dictate the price at which China and India, as well as other countries, can buy oil from Russia. Ms. Yellen is expected to meet with Indian Finance Minister

Nirmala Sitharaman

on the sidelines of the meeting of the finance ministers of Group of 20 major economies in Bali, Indonesia, later this week, according to a senior Treasury official.

Ms. Yellen said in the interview she would prefer to see countries purchasing Russian oil to set up their own domestic policies that would conform with the price cap. Barring that, though, she said many countries would ultimately have little choice but to accept the lower price.

“It makes it easier if at least they put a price cap in place,” she said. “But even if they don’t, this sanction will apply to Western banks and insurance companies that they’re going to be dealing with, and so they’re going to be affected by it. But it doesn’t hurt them. It helps them.”

Under the design Ms. Yellen and officials in the Group of Seven allies are exploring, tankers carrying Russian oil anywhere in the world could only receive financing and insurance from U.S., U.K. and European Union institutions if the sales price of the oil falls under the cap.

Much of the world’s maritime insurance industry is based in the EU and U.K., and proponents believe purchasers would likely not be able to receive necessary insurance and financial backing without complying with the cap. The proposal is seeking to create a carve-out from a total ban on insuring shipments of Russian oil that the EU is set to put into place later this year.

Russia is earning billions in hard currency from its oil sales around the world as it wages war on Ukraine, spurring Western officials to try to crimp the revenue stream and weaken Russia’s ability to finance its war. Many Western countries have moved themselves to ban imports of Russian oil.

At the same time, officials are trying to head off any additional spikes in global energy prices as inflation runs at the highest rate in decades. Without a carve-out for the price cap, the Treasury Department believes the EU’s insurance ban could take millions of barrels of Russian oil off the global market and significantly raise already high energy prices around the world.

Ms. Yellen earlier this week told reporters in Tokyo that officials haven’t yet settled on the price for the cap. She said that Russia had in the past based its budget on an oil price at around $40 a barrel, though she said that wasn’t necessarily the number allies would settle on. Oil began trading at roughly $96 a barrel Wednesday, and Russian oil is already selling at a discount compared with global benchmarks.

Some observers have questioned whether Russia would continue to sell oil at a capped price set by the U.S. and its allies. Ms. Yellen, who said she hasn’t communicated with Russian officials about the plan, said ceasing oil sales would force Russia to shut-in its own oil wells and permanently reduce its production capacity.

“We have heard some concern about the possibility that Russia would simply stop producing. I would say that it doesn’t really make a lot of sense as a Russian response,” she told reporters. “We would expect to set the price cap at a level that would clearly be profitable for Russia to continue to produce.”

The U.S. is also exploring combining the price cap with a tariff on Russian oil purchases, according to a senior Treasury official. Countries that allow the purchase of Russian oil under the capped price could set a tariff that effectively raises the price back to roughly the global benchmark, generating revenue for the importing country’s government rather than allowing companies purchasing the oil to reap profits, according to the official.

“I personally would see some advantages, I mean getting cheap Russian oil that you’re buying at a price below the market, there’s a surplus in that,” Ms. Yellen said in the interview. “Most people are buying at the world price. We will discuss with countries, there are countries that might want to capture that surplus.”

Advancing the price cap is the focus of Ms. Yellen’s trip to Japan, Indonesia and South Korea. She discussed the idea with Japanese Finance Minister

Shunichi Suzuki

in Tokyo on Tuesday, and she is expected to hold bilateral meetings with officials from Indonesia and Saudi Arabia while at the G-20 meeting, according to the senior Treasury official, before discussing the idea with South Korean officials in Seoul.

Write to Andrew Duehren at andrew.duehren@wsj.com