Washington says the G7 price cap on Russia's oil exports is working, even if most sales are above it, while EU officials admit infractions are hard to police.
The G7 price cap that limits Russian oil exporters' earnings and Moscow's tax receipts is still successful, even though most prices have been above the ceilings for weeks, US officials say. Medium sour Urals joined all other assessed Russian crude markets above the price cap in mid-July. And all products markets save gasoline and vacuum gasoil (VGO) are above their respective caps (see graphs).
The EU allows European trading firms, brokers and providers of maritime insurance and financial services to facilitate such sales to third countries, as long as the loaded price is at or below $60/bl for crude, $100/bl for high-value products such as diesel or gasoline, and $45/bl for products such as naphtha and high-sulphur fuel oil. The US and other G7 countries collectively vowed to enforce the prohibition. But Argus analysis of shipping patterns and loaded prices suggests that tankers linked to Greek and other European firms are still loading Russian cargoes at Baltic and Black Sea ports despite prices breaching G7-led caps.
"As far as we can tell — and we are certainly monitoring for evasion of the sanctions — these sales are occurring below the $60/bl price cap," US treasury secretary Janet Yellen says, referring to western companies' involvement. The price caps work as intended, the US Treasury Department says, noting reduced Russian government revenue and continued oil supply to emerging economies.
Enforcement of the price caps by US, EU and UK sanctions authorities is on a different footing from the previous practice of preventing sanctions violations. Western shippers and other market participants do not have to clear every transaction with government enforcers and can instead rely on in-house due diligence and record-keeping to demonstrate their compliance with the rules. The price cap mechanism was largely self-enforcing in the months after its introduction — in December for crude and February for products — because export prices were largely below the ceilings. But Saudi and Russian supply cuts have since helped push most Russian crude and products export prices above the caps.
Someone else's problem
Lack of enforcement does not necessarily signal a permissive environment for Russian sanctions violations. Given the structure of the sanctions, and the large amount of traded Russian oil, there is a lag between reviewing records that western service providers are required to keep and possible enforcement actions if those records are found to have been falsified. Opaque ownership structures may make it easier for some shipowners to avoid liability for breaching sanctions. And adding to the confusion is the proliferation of new companies trading Russian oil since last year. The US' record on Iran and Venezuela sanctions shows a tendency to target front companies, in many cases long after they cease operations.
"We are aware that there are individuals trying to circumvent our sanctions," an EU official tells Argus. But the commission says member states are ultimately responsible for ensuring compliance with sanctions. The commission aims to ensure sanctions are uniformly applied by working "very, very closely" with member states to come to a solution in cases of "alleged" circumvention, the official says.
Lack of compliance with the price cap is very "worrying", an EU diplomat tells Argus. The US views sanctions-busting schemes as inevitable but also contributing to the G7's purpose by creating more links to Russian oil's supply chain, with corruption and kickbacks inherent in such enterprises reducing Moscow's tax revenue. "Any money Russia spends to create an ecosystem outside the price cap takes resources away from its ability to fund its barbaric war," the Treasury says.
