The price of Russian crude oil has surpassed the price cap established by the Group of Seven (G7) nations, presenting the first significant challenge to Western sanctions against Moscow due to its war in Ukraine.
Data from Argus Media indicates that the benchmark price of Russian Urals crude exceeded $60 per barrel on Wednesday. This breach comes eight months after the G7 and the European Union implemented the cap, which restricts Western firms from providing shipping, insurance, and other services required for exporting Russian seaborne oil if it exceeds the specified threshold.
Although the G7 and EU have prohibited imports of Russian seaborne crude, energy-consuming nations like China and India have increased their imports of affordable Russian oil. As most shipping service providers are based in Europe, the price cap was designed to diminish Russia’s revenues while still allowing its oil to flow into the global market.
With rising prices, it remains unclear to what extent Western authorities will be able to enforce the cap, as highlighted by Matthew Wright, a senior freight analyst at Kpler. Monitoring which Western companies are offering services, such as insurance, to ships owned by non-G7 countries (which are not bound by the cap) will pose significant challenges in terms of transparency and enforcement, according to Wright.
Wright believes that buyers like India are unlikely to turn away from Russian oil despite the price increases. Instead, he predicts an increase in vessels owned by entities outside the EU being involved in lifting Russian crude, ensuring that there are sufficient means to keep the flow of Russian oil ongoing.
A spokesperson for the US Treasury informed CNN that the price cap is effective, citing that Russian oil revenue has decreased by nearly 50% compared to the previous year. The spokesperson also noted that Russia’s efforts to establish an ecosystem outside the price cap divert resources from funding its war activities.
