Russia's Urals Blend Breaks G7 Price Cap in New Test for Enforcement
For the first time since the G7 imposed a price cap on the seaborne trade of Russian crude oil, the price of the flagship Urals grade has risen above $60 per barrel, the threshold which should trigger the departure of Western service providers from the segment.
According to Reuters and Argus, the trading price for Urals reached about $62-63 on Thursday. Russia's Siberian export blend, ESPO, has traded well above this mark for some time without losing access to Western maritime services, and the exceedance for Urals will provide a new test of how vigorously the G7 coalition wishes to enforce the policy; cracking down on Russian oil exports would reduce the global oil supply, raising energy prices at a time when central banks are fighting persistent inflation. The price cap is carefully designed to let oil through: The U.S. Treasury pressed for the cap in order to let Russia continue to ship oil, thereby keeping the global oil supply unchanged and avoiding price spikes.
The cap does not apply to shipowners and service providers from outside of the G7, and new businesses in India, the UAE and China have picked up a substantial share of the Russian market. Credible insurance has been a sticking point, as most of the world's marine insurers are located in the West. According to a recent inquiry by the New York Times' visual investigations team, tankers in the ESPO trade go to great lengths to hide their movements and preserve their access to Western insurance while transporting oil that is priced well above the $60 price cap.
“We are monitoring the market closely for potential violations of the price cap,” the U.S. Treasury told Bloomberg in a statement. "It is worth noting that trades above $60 that do not use [G7] Coalition services are not in violation of the price cap and a substantial proportion of Russian oil trades, though, still use Coalition service providers.”
The cap may become moot for this reason, according to Bloomberg. Most shipments of Russian oil to India now go aboard vessels owned, managed and insured outside of the G7. Making payment for the oil can be a challenge, as Indian banks want to see compliance with the $60 cap before signing off on a transfer - but this can be resolved by switching to a different currency.