The G7 and its allies in the EU have quietly shelved their promised regular reviews of the Russian oil price cap scheme, reported Reuters, citing people familiar with the matter, even though most Russian crude is trading above the limit because of a rally in global crude prices to around $90 a barrel. That is 50% above the $60 price cap and makes it likely that hardly any Russian oil is being traded at the “permitted” rate.
As had been widely predicted, Russian producers eventually did not find it difficult to sell oil at above the price cap, using fewer Western ships and insurance services and illustrating perhaps that the US-led “West” does not have the monopoly on global trade that it might have imagined it had.
That has made it virtually impossible for the West to enforce the existing price cap, because the companies facilitating the trades are not within the G7 / EU sphere of control.
It was in December 2022 that the G7, the EU and Australia “imposed” the price cap mechanism on Russian crude oil last December, followed by a variable cap on refined oil prices from February 2023.
EU countries said at the time that it would be reviewing the price cap every two months and would adjust it if necessary. The G7 said that it would review “as appropriate” including “implementation and adherence.”
The G7 has not seen any review as “appropriate” since March, despite the recent surge in oil prices. The G7 also appears to have no immediate plans to look into adjusting the scheme, said Reuters, citing unnamed sources familiar with the situation. “There were some talks in June or July to do a review, or at least talk about it, but it never formally happened,” one diplomatic source said.
Some EU countries were reported to be keen for a review, but with little appetite from the US and other G7 members to make changes, the EU was somewhat in a position of being in office but not being in power.
The mechanism allows third countries to buy Russian fuel using Western ship insurance if there is proof the purchase does not exceed price limits of $60 per barrel for crude, $45 per barrel of heavy fuel and $100 per barrel of light fuel such as gasoline and diesel. Washington insisted that this would square the circle of maintaining energy supplies to the West while denying Russia income from its oil exports. While the policy does seem to have impacted Russian income in a relative sense – the price it has charged countries has been at a discount to the level it could have charged pre-invasion – it has not cut off Russian exports or Russian income.
Russia’s finance ministry said the average price on its flagship crude grade Urals had recovered to $74 a barrel on average in August, up from an average $56 in the first six months of the year.
In the immediate aftermath of the price cap Russia struggled to find ships to carry its oil to countries that were not bound by the G7 / EU cap, but the free market in shipping quickly adjusted, and a shadow market rapidly emerged, using older tankers, new shipowning companies, shadowy finance and uncertain levels of insurance cover.
Reuters said that it calculated that at least 40 middlemen, including companies with no prior record of involvement in the business, handled at least half of Russia’s overall crude and refined products exports between March and June. It has also been claimed that, while most of the oil that was moved was via this dark fleet, there were many western ships still involved in moving products. Russian crude looks to have been trading above the cap since mid-July and is currently being traded at around $67 a barrel at Russian crude terminals. Russian refined products such as fuel oil and diesel have also surpassed their caps.