G7 tightens enforcement of oil price ceiling amid widespread Russian evasion
The United States and its Western allies said on Wednesday they would close loopholes that have allowed Russia to sidestep a cap on oil prices, aiming to strengthen a policy aimed at curbing energy revenues that the Kremlin has used to finance the war in Ukraine.
The Group of Seven countries and Australia, known as the “price cap coalition,” last year agreed to a U.S.-led plan to limit the cost Russia can charge for its oil exports to $60 a barrel. The untested policy initially appeared successful in maintaining Russian oil flows while raising export costs and curtailing energy revenues.
But in the following months, Moscow circumvented the limit by developing a “shadow fleet” of tankers and finding alternative options for insurance and financing, allowing the country to sell oil at higher prices.
The price ceiling works by banning Russia from accessing Western maritime insurance and financial services critical to oil exports unless crude is sold below $60 a barrel. The policy relies on these insurers and financial service providers to verify the price of oil sold. But the verification process has been ineffective and Russia has managed to routinely sell oil above that ceiling.
The actions announced Wednesday by the Group of 7 will require oil forwarders who use Western maritime insurers and other companies that finance Russian oil exports to provide more frequent and rigorous documentation to those service providers on the contents and prices of oil shipments . The coalition will also demand that other participants in the energy trading supply chain be willing to provide more information about additional costs, such as shipping costs, that traders have inflated to disguise the higher prices paid for Russian oil.
“These changes will support the implementation of the oil price cap and disrupt avoidance by reducing the opportunities for bad actors to use opaque shipping costs to disguise oil purchased above the cap,” the price cap coalition said in a statement Wednesday. The group said the new requirements would “further complicate efforts by Russian exporters to circumvent the price ceiling while misleading coalition service providers.”
The coalition said the price cap had been successful this year as global markets remained well supplied with oil and energy prices were stable. It also estimated that Russian tax revenues from exports of oil and petroleum products had fallen by 32 percent from a year ago.
Energy industry analysts, however, are less impressed with the cap, which essentially diluted Western embargoes on Russian oil in an effort to prevent global oil prices from rising. Experts at the Center for Strategic and International Studies argued in an October report that the cap initially appeared to work because the $60 threshold was above market prices, but that as global oil prices rose this year, Russian oil exporters and traders could easily succeed in this. bypass the cap.
“Oil prices have risen since July, exposing fatal flaws in price ceilings for Russian oil exports.” They wrotenoting, “Since mid-July, Russia’s Urals crude oil has consistently traded above the $60 per barrel price ceiling.”
The European Union and the United States took steps this fall to crack down on price ceiling evasion.
The European Union’s latest sanctions package includes measures to curb the sale of old ships bound for Russia’s shadow fleet of tankers.
The Treasury Department on Wednesday imposed new sanctions on a Russian-owned shipping manager based in the United Arab Emirates that carries Russian crude at prices above $60. It also imposed sanctions on three obscure traders of Russian oil based in the Emirates and Hong Kong who broke the rules.
Wally Adeyemo, the deputy finance minister, said the sanctions “demonstrate our commitment to upholding the principles of the price ceiling policy, which furthers the goals of supporting stable energy markets while reducing Russian revenues to finance the war against Ukraine .”