Title: Cracking Down on Russian Oil Exports: The EU's Plan to Tighten the Price Cap
The European Union (EU) is considering strengthening its price cap on Russian oil exports, aiming to make it more challenging for companies to evade sanctions in the future. Recent difficulties with enforcing the current measures have led to plan revisions, with an emphasis on tightening monitoring processes and increasing documentation requirements.
Sanction loopholes
The current sanctions implementation has not achieved the desired effects, prompting the EU to take action. The monitoring measures and documentation requirements will be tightened in Brussels, potentially discouraging shipping companies from participating in the circumvention of Russia sanctions.
First anniversary of the price cap
The price cap, which restricts the selling price of Russian oil exports to third countries to $60 per barrel, came into effect a year ago. The EU aims to boost the effectiveness of the instrument by limiting essential maritime transport services for Russian oil exports if the exported oil price exceeds the price cap.
Slowing down a profitable venture
The primary objective of the price cap is to adversely impact Russia's financial gains by restricting the sale of its oil to countries like India, China, and Egypt. The price cap is also intended to put a halt to any potential profit from oil price increases, thereby weakening Russia's war effort in Ukraine.
A questionable "win" for Russia
Recent research by the Kyiv School of Economics suggests that more than 99% of Russian crude oil exported by sea in October was sold above $60 per barrel. The investigation highlights two possible ways by which Russia has apparently managed to bypass the price cap. First, Russia may be producing fake price certificates, and second, the country has expanded its use of "shadow fleets" (vessels not owned by Western shipping companies or insured by Western insurers).
Better enforcement could be on the horizon
The EU is planning to tighten the conditions for the price cap, likely including the decision in the twelfth EU sanctions package due to the Russian war of aggression against Ukraine. The upcoming package may also propose limiting trade in diamonds from Russia as an additional restriction on foreign trade.
Additional Insights
The current EU price cap on Russian oil exports has had a mixed impact on limiting Russia's oil revenue. Here are some key takeaways:
- Significant discounts: The price cap resulted in Russian oil trading at considerable discounts with Western markets. However, the direct impact on the fob price has been limited, as the price cap was often non-binding when the fob price was below the cap.
- Shadow fleet: Despite the price cap, Russia has managed to assemble a "shadow fleet," enabling it to continue exporting oil valued above $60/b to major markets like India and China.
- Future efforts: The EU aims to phase out imports of Russian fossil fuels by 2027 and is targeting the shadow fleet to further restrict Russia's oil exports. The EU is also considering additional sanctions to tighten enforcement and push down the price of Russian oil.
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