Washington has announced its first sanctions against shipping companies who have violated the G7 cap on Russian oil prices in an effort to crackdown on Putin’s “shadow fleet”.
The US Treasury blocked all transactions made with a Turkish company and a United Arab Emirates-based company after finding that they transported Russian oil for a price around a third higher than the cap, even though the shipping companies were American.
According to the oil price cap introduced by the G7 and Australia in December 2020, Russian oil may be transported with Western shipping services, such as insurance, if sold at less than $60 per barrel.
The goal of this policy was to reduce Russia’s oil revenue without affecting global supply.
It has become apparent that the price cap was widely abused. In September, the average price of Russian Urals crude oil exported by its Baltic Sea ports in September was $78 a barrel – 30% more than the price limit.
Analysts warn that Putin is skirting the cap on prices in two ways. First, by creating a “dark fleet” of tankers operating outside the West’s insurance market. Second, by transporting oil aboard Western-insured vessels that are not effectively policing .
The US Treasury now has sanctioned Ice Pearl Navigation Corp., a Turkish shipping firm that owns the Yasa Gold Bosphorus. This ship carried Eastern Siberian Pacific Oil, priced at more than $80 a barrel.
The UAE’s Lumber Marine SA registered owner of SCF Primorye was also sanctioned for transporting Novy Port crude oil, priced at more than $75 per barrel, from Russia.
The sanctions are a first indication that the coalition for the price cap is working on addressing what analysts have warned as an endemic issue with the implementation.
The only thing that ships need is a letter from the oil trader confirming the Russian oil being carried is sold below the cap price. This system is susceptible to fraud.
The US Treasury stated that the Office for Foreign Assets Control was aware of reports indicating that ESPO, and other crude oils exported via Russia’s Pacific port, like Kozmino may trade above the price cap despite the use of American shipping services.
OFAC said it closely monitors activity.
Sanctions mean that any American property owned or controlled by these two companies will also be seized, and all transactions between them and the US blocked.
Wally Adeyemo said, “Today’s actions demonstrate our commitment to continue to reduce Russia’s resource for its war on Ukraine and to enforce price cap.”
“We are committed to the implementation of a price-cap policy with two goals: to reduce oil profits on which Russia relies in order to wage an unjust war against Ukraine, and to keep global energy markets stable and supplied despite the turbulence created by Russia’s unprovoked attack on Ukraine. We will continue taking actions to achieve these goals.”
Since the beginning of the Ukraine war, a flurry new shipping companies with links or associations to Russia have been established.
S&P Global’s analysis shows that in 2022, 864 new shipping companies with links to Russia will be established. Many of these companies only manage one ship.
The majority of those making first-time calls to Russian ports since the price cap in December was introduced are from Turkey, the UAE and China.
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