The G7 and EU’s imposition of the price cap on Russian oil is being blatantly disregarded, according to the Financial Times in a report released on Tuesday. This act of non-compliance is evident as there are next to no seaborne crude cargos that are being traded below the $60-a-barrel limit. Western officials and Russian export data have attested to this fact.
The price cap was designed to reduce Moscow’s export revenues and was first implemented in December 2022. Following suit, similar restrictions on exports of Russian petroleum products were imposed in February. However, the Financial Times report revealed how Moscow has been able to circumvent the cap by selling almost no crude shipments at or below the price limit.
This revelation was consistent with Russia’s official statistics, which indicated that the average price of oil sold in October surged to $80 a barrel. An EU official admitted that the latest data highlighted the necessity of toughening their approach, as there seems to be no intention of allowing Russia to continue evading the price cap.
In response to this development, EU officials are contemplating strategies to bolster the price cap. They are considering options that include restricting Russia’s access to the used oil tanker market. It has come to light that Russia has been utilizing a fleet of aging tankers, otherwise known as the ‘shadow fleet’, on which the price restrictions have limited impact.
The average cost of the primary export, Urals oil, also rose above the $60 cap this summer due to supply and export cuts enforced by Russia, Saudi Arabia, and other members of the OPEC+ group. This hike in Russian oil prices has undermined Western efforts to diminish Moscow’s energy revenues, as almost all seaborne flows of Russian crude in August occurred without Western insurance, evidenced that the international sanctions are being circumvented.
Despite a 46% year-on-year drop in Moscow’s oil and gas sales revenues to 426 billion rubles ($4.6 billion) in January when the price cap was first implemented, there has been a dramatic increase since then. According to the most recent data from the Russian Finance Ministry, the country’s oil and gas revenues totaled 1.635 trillion rubles ($17.6 billion) in October. This figure represents a doubling in revenue from the previous month and a more than 25% increase from the previous year.
The failure of the G7 and EU’s price cap on Russian oil is a cause for concern as it directly impacts the coordination of efforts aimed at curbing Moscow’s export revenues. The loopholes that Russia has been able to exploit will certainly require a concerted and strategic effort to prevent continued circumvention. The situation underscores the need for stronger and more effective measures to counter Moscow’s skirting of the oil export restrictions. As such, all concerned parties will need to thoroughly reassess the effectiveness of the current set of sanctions and work towards closing existing loopholes.