US likely to step up Russian oil price cap enforcement as efficacy wanes, Yellen says
Breanne Deppisch
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The United States is preparing to step up Russian oil price cap enforcement measures in response to signs that the policy, aimed at limiting Moscow’s energy profits, may not be as effective as leaders had envisioned.
Treasury Secretary Janet Yellen told the Wall Street Journal in an interview that the U.S. is “very likely” to take additional steps to enforce the $60-per-barrel limit on Russian crude exports set by the G7-led price cap coalition last December.
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“We are looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap,” she told the outlet.
News that the U.S. will push for additional enforcement actions was separately confirmed to the Washington Examiner by a senior Treasury spokesperson.
“Coalition compliance and enforcement authorities take allegations of intentional price cap violations extremely seriously and will exercise appropriate authorities to take action where appropriate,” this person added.
Both Yellen and the Treasury spokesperson declined to detail what specific mechanisms were being considered.
Russia’s exports of its flagship Urals-grade crude fetched average prices of $85 per barrel in September, roughly $25 higher than the capped price agreed to by members of the price cap coalition.
Sizable volumes of Russian crude are also still being transported on Western ships. In the seven-day period ending Oct. 1, 37% of Russia’s fossil fuel exports were sent on ships owned or insured by countries in the G-7 or Europe—all of which are members of the price cap coalition, according to data compiled by the Centre for Research on Energy and Clean Air.
Russian fossil fuel profits totaled $4.68 billion during that seven-day period, according to the think tank.
Yellen’s remarks came as she traveled to Morocco to attend annual meetings of the World Bank and the International Monetary Fund.
From there, she will travel to Luxembourg for the Eurogroup’s finance minister’s meeting, where the price cap enforcement is expected to be a key topic of discussion.
The stepped-up push for enforcement is new: Until recently, Treasury had been loath to admit that the price cap—a novel policy meant to limit Russia’s war chest—had been anything but successful.
They say the plan has so far achieved the coalition’s goals of keeping Russian barrels on the markets—ensuring global markets are well-supplied and avoiding the shut-in of Russian oil that some leaders had feared.
“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 May progress report. It has since said that the cap has pushed down Russian oil and gas tax revenue by 44%.
“It’s not surprising that Putin has poured money in building infrastructure to ship his oil without G-7 services,” the Treasury Department spokesperson told the Examiner. “We’re glad to see Putin be forced to spend that money on boats and not tanks.”
Still, the plan has never provided 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 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.
Shipping experts have estimated Vladimir Putin has purchased roughly 600 off-book tankers to bolster the country’s “shadow fleet” in the past year, at an estimated cost of at least $2.25 billion.
But that’s an expensive feat. The cost of the illegal tankers, as well as additional insurance premiums that Russia must underwrite, could impose as much as $36 per barrel in additional costs, Yale Management professors Jeffrey Sonnenfeld and Steven Titan noted last week in a Foreign Policy op-ed , cutting into Moscow’s profit margins.
Yellen recently acknowledged for the first time that the Russian price cap may not be as effective as leaders had intended, telling reporters that the prices, coupled with the Kremlin’s efforts to build out its “shadow fleet” and otherwise evade the cap have complicated enforcement efforts for the G-7-led price cap coalition.
“Russia has spent a great deal of money and time and effort to provide services for the export of its oil,” Yellen told reporters. “They have added to their shadow fleet, provided more insurance and that kind of trade is not prohibited by the price cap.”
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.
But others have cited a 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.
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India has emerged as the EU’s largest supplier of refined petroleum products since Russia’s invasion, sending 57% more diesel and jet fuel to the bloc in September compared to the same point last year.