Russian oil price cap hailed as successful by Treasury officials despite rising profits.
The Russian Oil Price Cap: Choking Off War Revenue and Ensuring Market Supplies
According to senior Treasury Department officials, the Russian oil price cap has proven to be successful in both stifling the Kremlin’s war revenue and maintaining its oil supplies on the market. Despite recent trading house data indicating that Russian barrels are fetching profits above the $60 limit, Treasury officials emphasized that this outcome is not surprising.
Speaking to reporters on Thursday, Treasury officials acknowledged that some Russian oil is still being shipped to buyers at or above the $60 cap. This is happening through illegal “shadow” tankers and service providers operating outside the price cap coalition. However, they emphasized that even these transactions come at a cost.
Impact on Russian Government Oil Revenues
Eric Van Nostrand, the Treasury Department’s acting assistant secretary for economic policy, highlighted data from the Russian Ministry of Finance. According to this data, Russian government oil revenues for the first half of the year have fallen by 50% compared to the previous year, despite an increase in oil exports.
The reason behind this decline is that any oil sold outside the G-7-backed coalition is still sold at a discount relative to the Brent crude price. This means that Russia’s investment in amassing its shadow fleet or ensuring its own oil exports diverts funding away from its war chest as the cost of the war in Ukraine continues to rise.
“Since implementation, this decline in Russian revenues has persisted even as Russian crude oil export volumes remain above 2021 average levels,” Van Nostrand explained. “As a result, since the price cap went into effect, we have seen much more stability in global energy markets than the skeptics feared.”
The Mechanics of the Price Cap
The price cap was set at $60 a barrel for Russian crude oil exports in December, significantly lower than the $100 price Russia was experiencing after the invasion. The cap operates by prohibiting companies in coalition countries from providing maritime services for shipments of Russian oil unless the oil is sold below the cap.
Recent reports and shipping data have raised doubts about the effectiveness of the price cap. Data from commodities firm Argus Media and other trading houses indicate that Russia’s flagship Urals grade crude was shipped above the $60 cap in July. Additionally, the Urals discount relative to Brent crude has narrowed to $20 per barrel, about half of what it was in January, just one month after the cap was implemented.
Despite these concerns, Treasury officials remain optimistic about the success of the price cap. They argue that it has contributed to broader efforts to counter Russia’s aggression while promoting macroeconomic stability.
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