Denmark, Estonia, Finland, Latvia, Lithuania and Sweden have demanded a revision of the price cap on Russian seaborne oil. The cap was set in late 2022 at $60 per barrel and has remained untouched since then.
The Nordic and Baltic states have asked the European Commission to tighten the price cap on Russian oil as a matter of high priority, arguing that “sanctions must be strengthened continuously” to disable the Kremlin’s war against Ukraine.
“Measures that target revenues from the export of oil are crucial since they reduce Russia’s single most important income source,” the foreign ministers of Denmark, Estonia, Finland, Latvia, Lithuania and Sweden wrote in a joint letter seen by Euronews.
The document, dated 11 January, is addressed to High Representative Kaja Kallas and European Commissioner for Financial Services Maria Luís Albuquerque.
“We believe now is the time to further increase the impact of our sanctions by lowering the G7 oil price cap,” the six countries write.
The cap is a ground-breaking initiative introduced by G7 allies in late 2022 to limit the seaborne trade of Russian crude oil at $60 per barrel. The mechanism prohibits Western companies from providing services to Russian tankers, such as insurance, financing and flagging, that sell crude oil above the agreed-upon price tag.
The G7 also established two additional caps for premium-to-crude products ($100 per barrel) and discount-to-crude products ($45 per barrel).
The caps have remained untouched since their approval, despite strong fluctuations in Russian trade and ample evidence of sanctions circumvention.
As a way to bypass the restrictions, Moscow has deployed a “shadow fleet” of aged, poorly-kept tankers that use obscure ownership and insurance structures. The “shadow fleet” has been accused of deceptive practices, including transmitting falsified data, turning off their transponders to become invisible to satellite systems, and conducting multiple ship-to-ship transfers to conceal the origin of their oil barrels. It has also raised fears for its potential to cause an environmental disaster at sea.
According to the Centre for Research on Energy and Clean Air (CREA), only 36% of the seaborne crude oil that Russia sold in December was transported by tankers subject to the G7 cap. The remainder was shipped by the “shadow fleet”.
The price of Urals oil continues to exceed the West’s limitations: for the past year, it has ranged between $64 to $84 per barrel. China and India are the main buyers.
The market situation has fuelled calls for stronger measures.
In their joint letter, the six countries argue the international oil market is “better supplied today than in 2022” and the risk of a “supply shock”, which influenced the original negotiations on the cap, has considerably decreased.
Moreover, the countries say, Russia’s “outsized dependence on energy exports” to sustain its high-intensity war economy leaves it with “no alternative to continued oil export, even at a substantially lower price.”
The letter does not specify the new price at which the cap should be set.
CREA estimates setting a cap of $30 per barrel since the beginning would have slashed Russia’s oil export revenue by 25%, leading to €76 billion in losses.
“Lowering the price cap would be deflationary, reducing Russia’s oil export prices and inducing more production from Russia to make up for the otherwise drop in revenue,” CREA said in a recent analysis, which puts Russia’s production costs at $15 per barrel.
The Nordics and the Baltics also ask the European Commission to expand sanctions on the “shadow fleet” and those who facilitate the circumvention of the cap. So far, the bloc has sanctioned 79 vessels belonging to the “shadow fleet”.
In reaction to the letter, a spokesperson for the Commission said the document would feed into ongoing discussions but cautioned any revision was “ultimately” a decision for the G7 to take. Still, should a revision be proposed at one point, all 27 member states will have to reach a unanimous agreement before the G7 can act.
