According to price reporting agency Argus Media, Urals crude topped $60 a barrel on Wednesday, surpassing the cap set by the Group of Seven last year in a bid to limit revenue for Moscow’s war machine. The idea of the cap was to prevent Russian oil from being transported on Western ships – with Western insurance – unless it was priced below a minimum.
The latest data represents a victory of sorts for Moscow, which has compiled a Shadow fleet From ships large enough to carry crude oil to less serviced buyers from companies in the G7 nations, it relies heavily on hydrocarbon revenues. It’s a setback for Europe and the United States, which designed policy to keep enough oil flowing into the global economy to prevent an inflationary shock – while trying to lock in profits for Russia.
For some major Russian crude oil buyers, breaching the cap is an immediate headache. This is particularly true in India, a market that has kept Russian exports but where some buyers still depend on key Western services to keep imports coming.
It’s a problem,” said Vandana Hari, founder of Vanda Insights. “Indian banks have been very cautious in the past few months out of fear of sanctions, requiring refiners to show that the free rate for their shipments was less than $60 in order to pay.”
Harry added that there could be a knock-on effect on Moscow as well. “Maybe Russia should offer deeper discounts in order to keep buyers in Asia attractive,” she said. Or the brokers will need to cut their profit margins.
The move indicates that Russia will have to rely more on its own carriers and services, or those of so-called friendly countries, according to Vivek Dar, director of mining and energy commodities research at the Commonwealth Bank of Australia. However, he added, there will be a point at which the OPEC+ producer may struggle to replace Western supply of these tankers and services.
At the moment it is not clear where Russian shipments get insurance when Western insurance is refused. Shipping experts have long warned that one unintended consequence of the sanctions is the increased risk of environmental disaster, with no one left to cover the cost of cleanup.
“We are closely monitoring the market for potential price cap violations,” the US Treasury Department said in a statement. “It is noteworthy that deals over $60 that do not use alliance services do not violate the price cap and that a significant proportion of Russian oil trade, despite this, still uses alliance service providers.”
Argos Media data showed Urals prices rose to $60.78 a barrel in the Black Sea port of Novorossiysk on Wednesday. The pricing agency figures are closely watched by policymakers in the European Union and the United States, and have also been used by the Russian government. In the broader oil market, prices are rising as OPEC+ cuts supplies, tightening global inventories. Russian exports are too started b Which added pressure on prices.
The price ceiling has always been designed with a pragmatic approach. They were also meant to be reviewed periodically – with some EU countries pushing for a tougher approach – but those reviews have been quietly postponed.
According to the Ministry of Foreign Affairs, the Russian government oil revenues In the first five months of 2023, it is down nearly 50% from the previous year. DM