One year on, Russian oil price cap partially delivers 

A Western price cap imposed a year ago Tuesday (5 December) on Russia’s oil has had limited success with Russia increasingly finding ways to deliver crude at prices above the $60 limit.

The cap, jointly imposed on December 5, 2022 by the European Union, Australia and the Group of Seven rich countries, was designed to be the jewel in the crown of Western sanctions after Russia invaded Ukraine.

Initially successful, it lost its impact once President Vladimir Putin’s Russia found new buyers for its oil and new tankers to deliver it.

Russian crude has recently traded above $80 per barrel following production cuts by OPEC+, which includes Russia, and on fears that the Israel-Hamas war could broaden in the crude-rich Middle East.

Exports still flowing

Nations which agreed on the cap are banned from providing services, such as insurance, that enable maritime transport of oil priced above $60.

The idea was let Russian crude exports still flow so as not to sink the world economy, “at the same time as limiting the price,” UBS commodities analyst Giovanni Staunovo told AFP.

European maritime services were transporting about three quarters of Russian crude before the outbreak of the Ukraine war in February 2022, according to Rystad Energy analyst Jorge Leon.

By June 2023, this had sunk to one third.

“So in the first six months, it really served the two objectives: Russia was receiving less oil revenues and there was no disruption to the flow of oil in the market,” Leon told AFP.

But the price of Russian Urals crude, Moscow’s key oil benchmark, has traded at more than the mandated $60 on certain maritime routes, according to data firm Argus.

Moscow’s oil export revenues jumped nearly 11% to $18.8 billion that month, attaining the highest level since July 2022 on rising volumes and prices, according to the International Energy Agency.

The Paris-based energy watchdog added that all Russian crudes traded at more than $80 per barrel in September.

‘Ghost fleet’

“Russia continued to decrease its dependence on Western maritime services, particularly for crude shipments”, noted Kyiv-based economics institute KSE.

That is because the cap led Russia to build up its own “ghost fleet” to transport the nation’s oil.

“In the last year, Russia has been unwinding itself from European services because they were buying old vessels to transport their own crude – and they were also doing their own insurance,” said Leon from Rystad Energy.

“Then, they were able to continue transporting their own crude” without disruption.

About 185 full tankers from this shadow fleet left Russian ports in October, transporting in total about 2.6 million barrels of crude exports a day, according to KSE.

China and India have been snapping up those supplies – but crucially this has dimmed their appetite for crude from elsewhere.

That in turn has boosted the West’s supplies and dampened fears of a global shortage, industry experts said.

“The European Union and United States were turning a blind eye to slightly-above-cap Russian oil making its way to China or India as it meant more US and Middle East crude for Western markets,” SPI Asset Management analyst Stephen Innes told AFP.

“But now that the market is oversupplied… the United States thinks it’s now time to tighten all the screws.”

As a result, Washington in October announced its first sanctions on two companies over non-compliance with the Russian oil price cap.

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