Russian Oil Prices Markedly Down under Tougher Price Cap Regime: Officials
This article was first published on Rigzone here
The prices of Russian oil “markedly” fell after the United States and its allies started implementing a tougher price cap regime last year, U.S. officials said.
Last October the price cap alliance—Australia, the European Union and the Group of Seven, which includes the U.S.—launched the second phase of the oil sanctions regime in response to, as they claimed, Russian “shadow fleets” and fraudulent practices against service providers.
Under the first phase, Russia’s oil tax revenue dropped over 40 percent in the first nine months of 2023 compared to the same period 2022, U.S. Treasury Assistant Secretary for Economic Policy Eric Van Nostrand and Acting Assistant Secretary for Terrorist Financing and Financial Crimes Anna Morris said in a statement.
“As a result, the Kremlin focused on getting around the restrictions, investing money trying to adapt and evade”, said the statement posted on the website of the Treasury Department. “In summer and fall 2023, the Kremlin exported more of its oil via a ‘shadow fleet,’ an infrastructure of ships, insurers, and other service providers with opaque ownership structures and a history of sanctions evasion activities.
“At the same time, the Kremlin and its proxies developed new ways to defraud Coalition service providers and take advantage of their services.
“Driven by these factors and price increases in the world oil market, the average price that Russia earned on its oil rose above the cap.
“In response, in October 2023, the Coalition launched the price cap’s second phase with a two-pronged approach: to tighten enforcement of the price cap for trades that used Coalition services while increasing the costs to the Kremlin of selling oil via this alternative shipping ecosystem”.
Three months into the second phase, the price cap coalition observed that “the price at which Russia sells its oil has declined markedly”, the Treasury officials said.
“The shift reflects the effects of reduced oil prices globally over this period, but also a significant widening in the discount Russia earns relative to other global oil suppliers”, they said. “That discount rose from a low of $12 to $13 per barrel of crude oil in October to about $19 per barrel over the past month”.
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While the price cap has achieved its goal of reducing funds that the Kremlin could use in its war in Ukraine, it has also helped maintain the stability of global energy supply by forcing Russia to keep discounting its oil exports, claimed the statement. “Since October, the discount on Russian oil has increased meaningfully: from that low of $12-13 to a peak of $20 in January [2024], and stabilizing around $19 as of late February”, it said.
The caps started to take effect December 2022 at $60 a barrel for Russian crude before expanding to include refined products with limits of up to $100 per barrel. The caps for refined petroleum products took effect February 2023.
“Like we saw in the summer and fall, Russia will continue to invest money to avoid our sanctions, requiring us to continue to adapt and innovate in our strategy”, Morris and Van Nostrand said in the statement. “But as we reach the two-year mark of this full-scale invasion, it is important to recognize that the Coalition’s unity and willingness to deploy creative policy solutions is [sic] making a difference: keeping oil on the market while restricting Putin’s profits”.
In the latest case of the price cap enforcement by Washington the Treasury on Friday added JSC Sovcomflot, which it says is Russia’s biggest state-owned shipping company, to the list of sanctioned entities. Covered under the Sovcomflot designation are 14 crude oil tankers in which the Russian shipper holds interests, the Treasury said.
“Concurrent with the designation of Sovcomflot, OFAC is also issuing a general license authorizing the offloading of crude oil (or other cargo) from these 14 vessels for a period of 45 days”, it said in a statement referring to its Office of Foreign Assets Control. “In addition, OFAC is issuing a general license authorizing transactions with all other Sovcomflot-owned vessels at this time”.
To contact the author, email jov.onsat@rigzone.com
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