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Russia has succeeded in avoiding G7 sanctions on most of its oil exports, a shift in trade flows that will boost the Kremlin’s revenues as crude rises towards US$100 a barrel.
Almost three-quarters of all seaborne Russian crude flows travelled without western insurance in August, a lever used to enforce the G7’s US$60-a-barrel oil price cap, according to an analysis of shipping and insurance records by the Financial Times.
That is up from about 50 per cent this spring, according to data from freight analytics company Kpler and insurance companies.
The rise implies that Moscow is becoming more adept at circumventing the cap, allowing it to sell more of its oil at prices closer to international market rates.
The Kyiv School of Economics (KSE) has estimated that the steady increase in crude prices since July, combined with Russia’s success in reducing the discount on its own oil, means that the country’s oil revenues are likely to be at least US$15bn higher for 2023 than they would have been.
The shift is a double blow for western efforts to restrict Russia’s revenues from oil sales — which make up the biggest part of the Kremlin’s budget — following its full-scale invasion of Ukraine.
Not only is a higher proportion of Russian oil being sold outside the cap, but Moscow’s increasing independence as a seller has coincided with a strong rally in oil prices, which topped $95 a barrel for the first time in 13 months this week.
While Russia’s oil sector is still facing several significant challenges, including claims of shortages in its domestic refined fuels market and a dip in export volumes overall, the figures still suggest more oil revenues will be flowing into the Kremlin’s war chest.
Ben Hilgenstock, an economist at the KSE, said: “Given these shifts in how Russia ships its oil, it may be very difficult to meaningfully enforce the price cap in future. And that makes it even more regrettable that we did not do more to properly enforce it when we had more leverage.”
Russia this week banned the export of diesel and other fuels, a significant move from one of the biggest global sellers of diesel. The move has raised fears that Russian president Vladimir Putin is trying to disrupt the oil market as he did with natural gas, sparking last year’s energy crisis.
While the EU and US have largely barred imports of Russian oil, the G7 price cap was designed to keep Russian oil flowing into global markets.
The aim was to prevent a squeeze on supplies and an economically and politically damaging jump in prices.
The provision of western services such as shipping or insurance is allowed under the price cap — but only if Russia’s oil is sold for less than US$60 a barrel.
With Russia once reliant on western services to get its oil to market, the G7 calculated that Moscow would have little choice but to comply.
When the G7 price cap was first implemented in December last year Russia’s oil initially fell to a steep discount to international prices of as much as US$40 a barrel. — Financial Times.
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