Treasury claims success in effort to place cap on price of Russian oil
Breanne Deppisch
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The Treasury Department on Thursday claimed success for the cap on the price of Russian oil it announced a year ago with allies in the G-7, a novel policy meant to cut off funding for Russia’s invasion of Ukraine without driving up global energy prices.
“Despite widespread initial market skepticism around the price cap, market participants and geopolitical analysts have now acknowledged that the price cap is accomplishing both of its goals,” Treasury said in a progress report touting the policy.
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Citing Russian Ministry of Finance data, Treasury officials said that Russian oil revenue from January to March of this year dropped by more than 40% compared to the same period in 2022 — even as its oil sales volumes have increased by as much as 10%, largely due to increased sales to India and China.
Russia has also been forced to alter the way it taxes oil to help offset some of the lost revenue, Treasury said. And it never delivered on its earlier promise to slash production by 500,000 barrels per day as retaliation for the cap, suggesting it cannot afford to do so.
The price cap was set at $60 a barrel in December, well below the $100 price that Treasury says Russia was seeing after prices rose following the invasion. The cap works by forbidding any companies from countries in the coalition to provide maritime services for shipments of Russian oil unless the oil is sold below the cap.
The report comes just ahead of this year’s G-7 summit this weekend in Japan, at which the price cap is expected to be a major topic. Some members have voiced concerns over a lack of enforcement measures, illegal shipping methods, and third countries who have allegedly helped Russia evade cap restrictions.
Some analysts say the price cap has not been as effective as the Treasury is claiming. Some have noted the large “shadow fleet” of illegal tankers that allow Russia to ship oil outside the cap, as well as ship-to-ship transfers conducted in ports in the Mediterranean.
The plan also does not provide much in the way of enforcement, making it difficult for countries to monitor companies and ensure compliance with price cap-related restrictions on shipping, maritime insurance, and other services.
Others have cited a potential loophole in sanctions that allows third countries, such as India, to purchase high volumes of discounted Russian crude, refine it, and then sell it back to European buyers at a high price. European Union diesel imports have increased by roughly tenfold in April compared to the same point last year — with jet fuel rising by a whopping 250% in that same time frame.
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The EU’s foreign policy chief, Josep Borrell, told the Financial Times in a recent interview that the West should crack down on this and similar efforts.
“If diesel or gasoline is entering Europe … from India and being produced with Russian oil, that is certainly a circumvention of sanctions and member states will have to take measures,” he said.