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June 14, 2024

G7 Cracks Down on Russian Oil Price Cap Evasion Tactics

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Feb 5, 2024

The Group of Seven (G7) countries have issued an alert outlining key techniques being used to evade price caps on Russian oil exports. The “Compliance and Enforcement Alert” aims to enforce the $60 per barrel price ceiling imposed on seaborne Russian crude oil by the European Union, G7 and Australia late last year.

Price Cap Coalition Targets “Dark Fleet” Tankers

The G7 alert focuses heavily on shipping practices used to obscure the origin and destination of sanctioned Russian cargoes. It warns of ship-to-ship transfers, falsified paperwork, and complex ownership structures designed to circumvent restrictions.

The price cap enforcers state that most Russian crude is now being transported via Alternate Maritime Transport (AMT) – vessels that have deactivated their Automatic Identification System (AIS) transponders to avoid detection. This so-called “dark fleet” is estimated to include over 200 ships, which transit the globe with unknown cargo and questionable paperwork.

The coalition has pledged strict monitoring of these phantom tankers, stating:

“We are aware of the lengths and intricacies some market participants go to obscure the origin of oil cargoes…Those found to be in contravention of sanctions prohibitions and restrictions will face consequences.”

They also commit to sharing intelligence between national authorities to boost enforcement efforts globally.

Russia Accused of Undermining Sanctions “In Spirit and Effect”

British lawmakers recently accused Russia of exploiting “loopholes” in the price cap policy by blending sanctioned oil with other grades to disguise its origin.

MPs on the Foreign Affairs Committee argued that while Russia may be complying with the letter of the sanctions, it is undermining their intent. Committee Chair Alicia Kearns stated:

“The Kremlin is propping up the war effort by exploiting loopholes in the UK’s slapdash sanctions regime…On paper, the cap has worked by constraining Russian oil export revenue. But the reality is that Russia is shamelessly profiteering from blending sanctioned oil with other crude oils to create an ‘oil cocktail’ not covered by the cap.”

She also highlighted the role of Western middlemen in enabling sanctions evasion, whether knowingly or otherwise.

The G7 alert seems intended to address such tactics by warning traders and shippers to undertake thorough due diligence. It states that “willful blindness or ignoring obvious sanctions-evasion indicators” will not absolve them of responsibility or penalty under the price cap terms.

Impact of Oil Price Cap Remains Unclear

There is ongoing debate around whether the $60 price ceiling on Russian seaborne crude is having its desired effect.

The cap aims to restrict Russia’s oil export revenue while minimizing supply disruptions. But views differ on whether it is achieving either goal.

On one hand, Russia’s January oil export volumes held steady near December levels of around 4.5 to 5 million barrels per day. Its monthly export revenue also appears largely unchanged since the sanctions took effect.

This could suggest the cap has successfully capped revenues without heavily impacting flows. As intended, discounted Urals crude is finding new buyers in India, China and Turkey, replacing lost European custom.

However, the true picture remains obscured by the surge in under-the-radar “dark fleet” exports, which are not reflected in official data. There is also evidence that Russia’s increasing shipments of oil products like diesel are offsetting lost crude revenues.

If so, the cap may ultimately fail to starve Russia’s war machine of funding – only rerouting trade flows rather than reducing them. Strong global demand, rising crude prices, and Russia’s willingness to offer steep discounts could further dilute its impact over time.

Call for Tighter Enforcement and Expanded Restrictions

In light of the apparent limitations of the price cap policy, there have been calls from both Ukraine and Russia hawks in the West to take a tougher stance.

Suggested measures include:

  • Expanding the cap to cover oil products as well as crude oil
  • Banning Western shipping and insurance provision for Russian cargoes
  • Imposing secondary sanctions on importers like India and China
  • Further interdiction of sanctions-busting tankers and ship transfers

However, these proposals face resistance from some European countries concerned about energy security and inflationary impacts. There are also doubts over whether allies like India and Turkey would comply with outright import bans given their heavy reliance on Russian oil.

For now, the priority seems to be tighter monitoring and enforcement of the existing framework. But if “dark fleet” exports continue soaring, pressure will likely build for more assertive action in the months ahead.

Outlook: Cat and Mouse Game Set to Continue

In summary, recent developments suggest an ongoing cat and mouse game between Western enforcers and Russian sanctions busters.

The G7 will likely step up efforts to track and interdict oil tankers defying the price cap in the near term. But Russia appears committed to continuing such shipments via covert means.

Much will depend on the resilience of global demand for cheap Russian crude and products. With emerging markets eagerly snapping up discounted shipments, it may continue flowing below the radar irrespective of enforcement efforts.

In turn, this could force a policy response – either tightening loopholes around blending, expanding restrictions to other oil exports, or imposing secondary sanctions on enablers.

But for now, the cap seems set more to reroute rather than reduce overall Russian oil trade. As long as substitute customers exist, the Kremlin can likely sustain wartime revenues through sanctions workarounds.

The coming year promises more policy maneuvering between Western powers and Russia aimed at gaining the upper hand. But a decisive blow to Russia’s energy earnings looks challenging without more unified global action.

So the shadowy oil tanker game is set to continue – with compliant ships increasingly in the minority as sanctions take a toll on trade transparency and norms.

Table 1: Key Oil Price Cap Developments

Date Development Significance
Dec 2022 $60 per barrel price cap imposed on Russian seaborne crude oil Aims to restrict Russia’s oil export revenue while minimizing supply disruptions
Jan 2023 Russian crude exports remain steady after price cap introduced Suggests cap has capped revenues without heavily reducing flows
Jan 2023 “Dark fleet” of covert tankers emerges to bust sanctions Enables Russia to maintain exports despite cap through deception
Jan 2023 Russia accused of “shamelessly profiteering” from sanctions loopholes Blending and product shipments may offset lost crude revenues
Feb 2023 G7 issues enforcement alert targeting evasion tactics Signals tighter monitoring and penalties for non-compliance
Feb 2023 Calls made for expanded oil restrictions But faces resistance from importers and allies over energy security concerns
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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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