Russian Oil Inches Closer to G7 Price Cap
The price of Urals, Russia’s flagship export grade, has moved higher since the OPEC+ announcement, threatening the price cap agreed by the G7 and the European Union to impose on Moscow last year in a bid to hurt its oil revenues.
Urals is currently trading at nearly $60 per barrel, meaning this year’s oil revenues could be higher, Deputy Finance Minister Vladimir Kolychev said this week, as quoted by Bloomberg.
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The price cap prompts mix reactions. While Russia says it would not sell oil to countries enforcing the cap, Western insurers, the authority responsible for enforcement of the cap complained about difficulties in making this enforcement happen.
According to Axios, the cap appears to be working despite all the challenges. In a recent report, the news outlet noted the decline in Russian oil export revenues from over $20 billion last April to less than $15 billion for February 2023.
The Financial Times, however, reported last month that the price, at which Russian companies sell oil abroad “often exceed the G7-imposed price cap on the country’s exports.” As a result, the report added, the federal government had decided to overhaul the tax code for oil companies in a bid to get a bigger portion of the oil export money.
Meanwhile, Barron’s commentator Ben Cahill noted that OPEC+’s decision to reduce production will likely push Russian oil prices higher, too.
“That will make it harder to enforce the price caps and crack down on illicit oil trade without choking off supplies. Sanctions watchdogs will have to make tough choices,” Cahill wrote.
Indeed, despite the lower oil revenues, which was the primary purpose of the price cap, Russia’s oil exports remain strong—which was the second purpose of the cap, although its authors probably aimed for even lower revenues.
According to Barron’s Cahill, Russia is exporting oil abroad at the same rate as it did before the invasion of Ukraine and the consequent barrage of EU sanctions.
