Deputy Treasury Secretary Wally Adeyemo speaks with Yahoo Finance's Jennifer Schonberger about setting the Russian oil price cap above the cost of production, bringing down energy inflation, and the state of the U.S. economy.

Video Transcript

- The US has been in detailed talks with G7 partners about setting a price cap on Russian oil. That's in order to reduce Russia's revenue to fight Ukraine and ensure oil can keep flowing to the global market, preventing a spike in global oil prices. Let's get over to Yahoo Finance's Jennifer Schonberger, who has an interview on the topic. Jen?

JENNIFER SCHONBERGER: Thanks so much, Julie. And here to weigh in on that, I want to welcome in Treasury Deputy Secretary Wally Adeyemo. Sir, welcome to the program. Thanks so much for joining me.

WALLY ADEYEMO: Thanks for having me, Jennifer. It's good to see you.

JENNIFER SCHONBERGER: Great to see you as well. I understand the US is looking to join the G7 in implementing a cap on Russian oil prices and, in conjunction with that, adopting complementary sanctions ahead of the EU's sixth sanction package due on December 5.

What is the timeline on that? Are you still on course to implement that later this fall? And what exactly could those complementary sanctions look like?

WALLY ADEYEMO: So, Jennifer, as you know well, in May of last year, the EU introduced a sixth sanctions package that did two things-- said that as of December 5, Europe would no longer purchase Russian oil or refined product, a move that the United States made several months ago, which will mean that the vast majority of G7 countries no longer purchase oil or refined product from Russia. But in addition to doing that, they banned the use of European services to ship Russian oil anywhere else in the world.

What the price cap seeks to do is to create a permission structure for Russia to ship its oil using G7 services, but only if it's under a certain price, in order to deny Russia the revenues-- the excess revenues-- they've been making due to their invasion of Ukraine. We're going to put in place the price cap by December 5, which is the date that the European sixth package goes into effect. And it will be put in place by the United States but also by our G7 allies.

And a number of other countries have agreed to come aboard the price cap coalition in order to make sure that we have a broader coalition that will both enforce the price cap going forward, but also a number of countries that are importers that are also considering joining. In terms of when you think about the way this will be enforced, fundamentally, organizations like the Treasury Department of the United States and similar organizations across the G7 will put out rules and guidelines, some of which will be coming out in the next few days, that will talk about how we'll have permission to use financial products to ship Russian oil.

And the goal will be that if a company is able to figure out that the oil is being shipped under a price that's been set by the price cap, then they can ship the oil. But if the price is higher than that, then Russia needs to find other more expensive ways to ship their oil and put countries in a position where they can negotiate lower prices going forward.

JENNIFER SCHONBERGER: So how exactly is this going to help keep inflation under control by preventing energy prices from spiking globally? Certainly, we've seen oil prices come down from their peaks. And just this week, oil prices have been under pressure, under concerns about slowing global growth. So how do those macro forces factor into this? In some ways, is the market sort of doing the work for you?

WALLY ADEYEMO: Jennifer, we've been encouraged by seeing the reduction in gas prices. But it's important to remember that we've already taken a number of steps to try and increase supply. The president's decision to use the Strategic Petroleum Reserve, and the decision made by a number of countries to also join us, is having an impact. It's increased supply on the global markets.

And our goal is to make sure the supply stays high. So part of the goal of the price Cap coalition is to create incentives for Russia to continue to ship its oil. We're gonna set the price cap above Russia's price of production. We're gonna give them the ability to use G7 services to sell their oil as long as it's sold under the price cap.

Our goal, then, is to make sure that the market remains well supplied because we think that will continue to put downward pressure on markets in order to make sure that we continue to see gas prices fall. And, as you know, one of the biggest contributors to headline inflation today is the skyrocketing cost of energy that has skyrocketed in response to Russia's invasion of Ukraine. And we've also seen huge increases in the cost of food due to Russia's invasion of Ukraine.

And while we've seen downward pressure over the last few months because of a number of the actions that we've taken in this country, including the release of the Strategic Petroleum Reserve, what we know is that ultimately, we want to keep putting downward pressure on prices in order to put downward pressure on inflation-- on headline inflation and inflation overall.

And part of that is going to be implementing the price cap in a way that allows Russian oil to flow but decreases the amount of revenue that Russia is making that they can use to prop up their economy, and also to fund their illegitimate war in Ukraine.

JENNIFER SCHONBERGER: Mr. Secretary, we've had two consecutive quarters of negative GDP growth, inflation still a problem here. Are you worried at all about stagflation? And to really get inflation under control, do we really need a recession? Do we have to go through what's healthy, those economic cycles, if you will?

WALLY ADEYEMO: Jennifer, as the president said, making sure that we address inflation and bring it down is the administration's top priority. And we've been encouraged to see that while the Fed is taking the lead here, and they're doing the things that they need to, and we're gonna respect their independence, we've continued to see job growth in the US economy, including last month. And that historic job growth over the course of the president's term continues.

And one of the other things that was encouraging about the numbers that came out last month was the increase in labor force participation. And we think that those increases in labor force participation are going to help us in terms of dealing with the supply constraints that we're seeing there as well. So we believe that there is a path to being able to both bring down inflation but continue to see the positive momentum we've seen in the economy. And we think that the United States is better positioned to do this than any other economy.

As you know, Jennifer, inflation is a global phenomenon. It's impacting all developed economies. But in the United States, we're better positioned to deal with it because the policy decisions we've made here in the United States, including the decisions that are being made today, including the Inflation Reduction Act, which was recently passed, which will put us on a better path over time to reduce our deficits but also expand the potential of the US economy.

JENNIFER SCHONBERGER: Mr. Secretary, I know there is talk about onboarding additional Asian partners for this oil price gap coalition. And you were just in India in late August. Has India given you any indication that they are looking to join this oil price cap coalition? And can you make this work without India and China joining in?

WALLY ADEYEMO: So, Jennifer, I had a good trip in India, where price cap was amongst many issues that we talked about. It was good to be in India to see how the reforms have been made by the Modi government are having a positive impact on that economy. And what Indian officials told me in private is what they said in public, which is that the thing they care most about is paying the least amount of money for energy and making sure that they can secure energy supply for the Indian people.

And that's why they're interested in continuing the conversation about the price cap. I was encouraged to see comments from the Indian petroleum minister saying that they're going to consider the price cap. And the reason they're going to do that is because ultimately, their goal is to make sure that they're getting energy as cheaply as possible. So our hope is that India will come on board and that China will also consider it.

But even if these countries don't come on board, we think that the price cap will be effective because it does two things. One is it will create transparency with regard to the price that those in the price cap coalition are willing to pay and put countries like India, Indonesia, countries throughout Asia, in a better position to negotiate lower prices with the Russians going forward.

We've already seen that Russia's negotiating with some countries prices as low as-- with a 30% discount on the current price of oil in light of the coming price cap in the sixth package. We've also heard from a number of countries that are interested in joining the price cap coalition that the Russians are approaching them, looking for new homes for their oil to go. And our second goal is going to be that if Russia can't use the services provided by G7 countries, to make it far more expensive for them to find services to use to ship their oil. And that, again, will reduce their revenues.

Ultimately, our goal here is to make sure that Russian oil can continue to flow in order to make sure that we have enough supply to meet global demand, but also, to make sure that they're earning less revenue selling it. And we're already seeing that strategy succeed. And it will succeed with or without certain members of the coalition.

JENNIFER SCHONBERGER: Unfortunately, we'll have to leave things there. That's all the time we have this morning. But, Mr. Secretary, I so appreciate your insight. Please keep us up to date on this, and hope to speak with you again soon.

WALLY ADEYEMO: Thank you so much for having me. Take care.

JENNIFER SCHONBERGER: That's Deputy Treasury Secretary Wally Adeyemo. Brian?