Information
The European Union and the UK are advocating for a reduction in the current $60 per barrel price cap on Russian oil, a key sanction designed to limit Moscow’s ability to finance its war in Ukraine. This cap, implemented in December 2022, restricts the use of G7 and EU shipping and insurance services for Russian oil unless it’s sold below the threshold. While Brent crude has hovered just above the cap, Russian oil has traded slightly below it, prompting calls for a lower cap, possibly around $50, to further reduce Kremlin revenues. Despite support from the EU and UK, the United States has shown reluctance, believing that already-declining oil prices are sufficiently impacting Russia’s economy. Discussions within the G7 remain ongoing, with unanimity among EU members required for any change.
Experts stress that lowering the cap will be ineffective without stronger enforcement. Russia has increasingly relied on a “shadow fleet” of older tankers and opaque insurance to circumvent the cap, prompting some enforcement actions, such as sanctions on individual ships. However, enforcement gaps persist, with widespread fraud in pricing declarations and weak compliance checks. Analysts argue that enforcement should focus on buyers verifying transaction prices, rather than transporters. With oil prices falling and Russia’s economic vulnerabilities growing, there is a strategic window for more aggressive sanctions. Observers contend that decisive enforcement, paired with a lower cap or even full export restrictions, could significantly weaken Russia’s war financing capabilities.
Source: FT, Reuters
So What
Though reducing Russia’s income is always a good move in this current day and age, it seems unlikely that this is an effective way of doing it. As highlighted in the article, their current shadow fleet is effectively evading sanctions and producing a pretty penny, clearly enough to keep the war in Ukraine going, even if only just. Stopping this fleet or targeting illegal purchasing countries would likely be more effective.
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