Treasury Department Announces New Sanctions on Oil Shippers and Traders Assisting Russia in Circumventing Price Restrictions

The United States and its Western allies have taken steps to tighten loopholes that have allowed Russia to evade a cap on its oil price. This move aims to bolster a policy that was originally intended to curb energy revenues that the Kremlin has been using to fund the ongoing Ukraine war.

The “Price Cap Coalition” Takes Action

The Group of 7 nations and Australia, known as the “price cap coalition,” agreed last year to a United States-led plan to limit what Russia can charge for its oil exports to $60 a barrel. Initially, the policy appeared successful at keeping Russian oil flowing while increasing its export costs and curtailing its energy revenues.

However, over time, Moscow managed to circumvent the cap by developing a “shadow fleet” of tankers and finding alternative options for insurance and financing, allowing it to sell oil at higher prices.

Strengthening the Price Cap Policy

The actions announced by the Group of 7 on Wednesday will require oil shippers using Western maritime insurers and other firms that finance Russian oil exports to provide more frequent and rigorous documentation about the contents and prices of oil shipments. The coalition will also require other participants in the energy trade supply chain to provide more information about ancillary costs, such as shipping fees, that traders have been inflating to disguise higher prices paid for Russian oil.

The price cap coalition stated, “These changes will support the implementation of the oil price cap and disrupt circumvention by reducing opportunities for bad actors to use opaque shipping costs to disguise oil purchased above the cap.”

Successes and Criticisms of the Price Cap

The coalition highlighted the success of the price cap this year, noting that global markets remained well supplied with oil and energy prices had been stable. They estimated that Russian tax revenue from oil and petroleum product exports was down 32 percent from a year ago.

However, some energy industry analysts have been less impressed with the cap. Experts at the Center for Strategic and International Studies argued that the cap appeared to work initially because the $60 threshold was set above market prices. But when global oil prices rose, Russian oil exporters and traders easily circumvented the cap.

Since mid-July, Urals crude from Russia has consistently traded above the price cap of $60 per barrel.

Cracking Down on Evasion

The European Union and the United States have been taking steps to crack down on evasion of the price cap. The European Union’s latest sanctions package includes measures to curtail the sale of old shipping vessels that are making their way to Russia’s shadow fleet of tankers.

The Treasury Department also imposed new sanctions on a Russian-owned ship manager based in the United Arab Emirates and three obscure traders of Russian oil based in the Emirates and Hong Kong. These entities have been transporting and trading Russian crude priced above $60, violating the rules.

Wally Adeyemo, the deputy Treasury secretary, stated that these sanctions demonstrate the commitment to upholding the principles of the price cap policy, which aims to support stable energy markets while reducing Russian revenues used to fund its war against Ukraine.