Yellen: US to increase enforcement of Russian oil price cap as effectiveness declines.
The United States to Strengthen Enforcement of Russian Oil Price Cap
The United States is gearing up to enhance measures to enforce the price cap on Russian oil, as signs indicate that the policy aimed at limiting Moscow’s energy profits may not be as effective as anticipated. Treasury Secretary Janet Yellen revealed in an interview with the Wall Street Journal that additional steps are “very likely” to be taken to enforce the $60-per-barrel limit on Russian crude exports, set by the G7-led price cap coalition. Yellen emphasized the seriousness of abiding by the cap and ensuring market participants are aware of the enforcement.
“We are looking at enforcement very carefully, and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap,” she said.
A senior Treasury spokesperson confirmed separately to the Washington Examiner that the U.S. will push for additional enforcement actions. The coalition compliance and enforcement authorities are committed to addressing intentional violations of the price cap. The specific mechanisms being considered were not disclosed by Yellen or the Treasury spokesperson.
In September, Russia’s flagship Urals-grade crude was sold at an average price of $85 per barrel, $25 higher than the capped price agreed upon by the price cap coalition. Furthermore, a significant amount of Russian crude is still being transported on Western ships. According to data compiled by the Center for Research on Energy and Clean Air, 37% of Russia’s fossil fuel exports in the seven-day period ending October 1 were sent on ships owned or insured by G7 or European countries, all of which are members of the price cap coalition. During this period, Russian fossil fuel profits amounted to $4.68 billion.
Yellen’s remarks were made during her trip to Morocco for the annual meetings of the World Bank and the International Monetary Fund. The enforcement of the price cap is expected to be a key topic of discussion at the Eurogroup’s finance ministers meeting in Luxembourg, where Yellen will be present.
Challenges and Loopholes
While the price cap has achieved its goals of keeping Russian barrels on the market and avoiding the shut-in of Russian oil, enforcement has been a challenge. The plan lacks effective mechanisms to monitor companies and ensure compliance with price cap-related restrictions. There is also a “shadow fleet” of illegal tankers that allow Russia to ship oil outside the cap, along with ship-to-ship transfers conducted in Mediterranean ports. Shipping experts estimate that Russian President Vladimir Putin has acquired approximately 600 off-book tankers in the past year, costing at least $2.25 billion. These expenses, along with additional insurance premiums, could impose up to $36 per barrel in additional costs, reducing Moscow’s profit margins.
Yellen recently acknowledged that the Russian price cap may not be as effective as intended, citing the prices and Russia’s efforts to evade the cap through its “shadow fleet” as complicating factors. She highlighted that Russia has invested significant resources in providing services for oil exports, expanding its shadow fleet and increasing insurance, which is not prohibited by the price cap.
The price cap, set at $60 a barrel in December, prohibits companies from coalition countries from providing maritime services for Russian oil shipments unless the oil is sold below the cap. However, there is a loophole that allows third countries, like India, to purchase discounted Russian crude, refine it, and sell it back to European buyers at a higher price. India has become the EU’s largest supplier of refined petroleum products since Russia’s invasion, with a 57% increase in diesel and jet fuel sent to the bloc in September compared to the previous year.
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What specific measures does the United States aim to implement in order to strengthen the enforcement of the price cap on Russian oil exports
Oup and G20 meetings taking place later this month.
The price cap on Russian oil exports was initially implemented by the G7-led coalition in response to concerns over Russia’s aggressive foreign policies and growing energy dominance. The aim was to limit Moscow’s revenue from oil exports and reduce its ability to fund activities deemed detrimental to global security and stability. However, recent data suggests that the policy may not be having the desired impact.
The gap between the capped price and the actual selling price of Russian crude remains substantial, indicating that there are ongoing violations of the price cap. Additionally, the fact that a significant portion of Russian crude is still being transported on Western ships demonstrates a disregard for the enforcement efforts of the coalition.
The United States, as a leading member of the coalition, is determined to strengthen the enforcement measures and ensure that market participants are fully aware of the consequences of violating the price cap. Treasury Secretary Janet Yellen’s statement highlights the seriousness with which the U.S. government approaches this issue.
While the specific mechanisms being considered for additional enforcement actions have not been disclosed, it is clear that the U.S. will push for stricter measures. The coalition compliance and enforcement authorities are committed to addressing intentional violations and holding accountable those who benefit from disregarding the price cap.
The enforcement of the price cap is of particular importance considering the substantial profits Russia continues to generate from fossil fuel exports. The data compiled by the Center for Research on Energy and Clean Air highlights the significant revenue accrued by Russia during a seven-day period. These profits contribute to Russia’s economic power and ability to pursue its foreign policy objectives.
Yellen’s remarks during her trip to Morocco demonstrate the U.S. government’s commitment to addressing this issue internationally. The upcoming Eurogroup and G20 meetings will provide an opportunity for further discussions and actions to reinforce the price cap enforcement measures.
The effectiveness of the price cap on Russian oil remains a crucial issue for global energy security and geopolitical stability. It is imperative that all coalition members unite in their efforts to enforce the cap and hold accountable those who undermine its objectives. The United States, with its economic and political influence, has a key role to play in ensuring the success of these measures. By strengthening the enforcement of the price cap, the coalition can send a strong message to Russia regarding the consequences of its actions and work towards a more balanced and secure global energy market.
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