Russian oil still relies heavily on Western-backed ships despite breaching the price cap


Filip De Mott
Mon, August 21, 2023

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Russia's flagship crude breached the G7's $60 price cap in mid-July.


But there's been little decline in the amount of Western-backed vessels servicing Russia, Bloomberg reports.


That's as it's difficult for servicing firms to validate the price at which crude is purchased.

Western-backed vessels have largely remained involved in Russia's oil trade, even after the country's flagship crude breached the $60 price cap imposed on it by the G7.

In recent days, the Urals crude oil price has eased from a $73-per-barrel peak, but still remains significantly above the West's threshold. The measure, implemented in December, was meant to limit Moscow's energy revenue, without denting global oil supply.

Under the restriction, the Kremlin should not be able to rely on G7, EU, or US services when the price cap is surpassed. But despite a mid-July price breach, Western-owned and insured vessels continue to service Russia's energy trade, Bloomberg reported.

40% of oil tankers subject to the cap have continued to load Russian crude since the Urals price surpassed $60 on July 12. It's a small decline from 50% of vessels that operated in Russia ahead of the threshold's breach.

Meanwhile, the amount of ships covered by Western insurance dropped from 60% to 45% in the same timeframe. While a large dip, these insurers still account for a significant portion of vessels working in Russia.

Part of the issue stems from how the price cap is designed to work in practice, Bloomberg said. To comply with the G7's regulation, servicing firms involved with Russian cargo must receive an attestation, or a written pledge, which establishes that the commodity was purchased below the cap.

This leaves servicing firms to place full faith in a piece of paper, often with questionable validity. Though the G7 expects companies to also pursue their own due diligence, many don't, given difficulties in comparing long-term deals with immediate market prices.

Of course, the price cap only applies to firms within the G7, EU, and US coalition, and Russia is free to trade at higher prices with outside partners. And while the country's economy suffers from labor shortages and a crashing ruble, it could gain from the commodity's higher price.

The country may have also profited in other ways through the price cap. According to The Financial Times, that's as Russia could have taken advantage of a loophole that allowed it to inflate its shipping costs, bringing in $1.2 billion.