US and UK enforce Russian oil price cap

The UK and US tighten rules on the shipping of Russian crude oil to make it more difficult for Moscow to avoid the so-called “price cap”, a policy designed to squeeze the Kremlin’s revenue.

According to rules published Wednesday, companies involved in shipping Russian crude must prepare new documentation to prove that each voyage has been compliant with the G7 pricing cap. They cannot simply reaffirm that the law will be followed.

Other members of the “price cap coalition”, which include the Group of Seven nation, the EU and Australia, are also issuing similar detailed guidance. It is intended to make it harder for Russia, to obtain services like insurance without adhering to the price cap.

The new rules will allow insurers and service providers to request information on the cost of a contract when oil is being sold at a price which includes other costs such as freight and insurance.

The new rule is intended to make it more difficult for companies to avoid the restrictions, by pricing oil below the cap. They can then claw back money through increased shipping fees, insurance costs and other expenses such as export licensing and packing.

Benjamin Hilgenstock is an economist from the Kyiv school of Economics.

It will make it easier for the enforcement agencies to verify if there have been any violations.

Companies from countries in the coalition of price caps may move Russian oil under the terms of the cap, which was introduced last December. This is as long as oil prices are below the maximum. This is $60 per barrel for crude oil.

Since the summer, crude oil sales from Russia are routinely priced above $60, causing concern about whether or not the price cap still works to deny revenues to the Kremlin. Officials want to show that concerted efforts can bring down Russian prices.

Senior US Treasury officials said that they consider this phase two of the implementation of price caps. They said that the US is pivoting towards more aggressive enforcement.

The official stated that the Russian oil discount against market prices has increased from $13 per barrel to $18 since mid-October when they announced they had begun this enforcement action.

Russia has mostly avoided the cap through its “shadow fleet”, a grouping of vessels, largely older ones, that have no ties to countries in the price cap coalition and are not therefore bound by regulations. It is still dependent on companies with links to the west for a part of its exports.

Over the past few months, more that a quarter (25%) of crude oil exports were on vessels linked to the G7 and EU, even though almost no oil was sold below the cap.

The Office of Financial Sanctions Implementation at the UK Treasury said it was introducing the changes to “strengthen the compliance regime and reduce routes for circumvention” and to align with G7 partners.
Senior US officials said that they also wanted to raise the price of Russia’s shadow fleet.

In this effort, US Treasury put sanctions on Hong Kong-based Bellatrix Energy and Dubai registered Voliton – little-known traders who have gained in prominence since war began. The three companies are listed because they “operated or have operated in the Russian Federation’s marine sector”.

The Treasury stated that “Bellatrix” has traded millions of tons crude oil, and other products from Russian state-owned companies. It also received hundreds of millions in loans from a Russian bank.