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FT: Russia avoids G7 price cap on most oil exports

by Martin Fornusek September 25, 2023 12:51 PM 2 min read
The Russian-chartered vessel ANSHUN II with "Yokohama" fenders prepared and pipelines connected to receive another tanker and transfer Russian crude oil, 20 miles off Ceuta, on March 5, 2023, in Ceuta, Spain. (Photo credit: Antonio Sempere/Europa Press via Getty Images)
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Russia is growing increasingly less reliant on Western services when shipping out its oil, allowing it to more successfully avoid the $60-per-barrel price cap set by the Group of Seven (G7), the Financial Times reported on Sept. 25.

In combination with a steady rise in crude prices almost up to $100 per barrel and Russia's success in reducing the discount on its oil, Moscow's oil sales profit is likely to be at least $15 billion higher this year than previously expected, the outlet said with reference to the Kyiv School of Economics.

Oil and gas export revenues represent roughly a third of Russia's total budget proceeds, crucially needed to sustain Russia's military as it plans a massive increase in defense spending next year.

As the U.S. and the EU largely banned Russian oil imports, the G7 imposed its price cap last year primarily to limit Moscow's revenue from seaborne crude flowing to global markets.

Russia's reliance on Western services such as shipping insurance gave the West leverage to enforce the price cap. The value of Russian crude initially dropped under $40 per barrel at the start of the year, forcing Moscow to offer a discount on its sales.

However, Moscow has since then built up a so-called "dark fleet" of oil tankers operating without Western insurance or other services, taking away the West's leverage. According to the Financial Times, almost three-quarters of Russian seaborne crude traveled without Western insurance in August.

The Wall Street Journal reported that the "dark fleet" operates hundreds of vessels owned by companies in Greece, India, the United Arab Emirates, or Turkey. These freight operators avoid Western sanctions by forgoing insurance with the P&I Clubs, the global networks that insure some 90% of the world’s commercial shipping.

To replace the European markets, Moscow has been refocusing on other buyers such as India or China. In turn, European countries like Germany have increased their imports of oil products from India, indirectly buying Russia's produce.

According to Reuters, Russia's fossil fuels revenues are on a steady rise, going up by 14% in September compared to the previous month.

Bloomberg: Russia plans massive hike in defense spending in 2024
Next year, Russia’s defense spending will be increased to 6% of the country’s gross domestic product (GDP) from 3.9% this year and 2.7% in 2021, Bloomberg reported on Sept. 22.

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