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The UK and US are tightening rules around the shipping of Russian oil in an attempt to make it harder for Moscow to circumvent the so-called price cap, a policy aimed at squeezing the Kremlin’s revenue from crude.
Companies involved in shipping Russian oil will need to prepare fresh documentation to show that each voyage has complied with the G7 price cap, rather than generic reassurances that the law would be obeyed, under rules published on Wednesday.
Similar detailed guidance is being issued by other members of the “price cap coalition”, which includes the Group of Seven nations, the EU and Australia. The intention is to make it more difficult for Russia to take advantage of services such as insurance without complying with the price cap.
Under the new rules, when oil is sold at a price that includes other costs, such as insurance and freight, the insurers and other service providers will be able to demand cost information about how the contract was priced.
The change is designed to make it harder for companies to circumvent the restrictions by pricing the oil under the cap and then clawing money back through inflated fees for shipping, insurance and other costs such as export licenses and packing.
“These are encouraging developments because, for the first time, it is going to mean that insurers actually have the ability to check if their clients are breaching sanctions on each voyage,” said Benjamin Hilgenstock, an economist at the Kyiv School of Economics.
“It will also potentially make it much easier for enforcement agencies to check if violations have taken place.”
Under the terms of the price cap — introduced last December — companies from price cap coalition countries may be involved in moving Russian oil as long as the oil is priced at below a set maximum. For crude oil, this is fixed at $60 per barrel.
Crude sales from Russia have, however, routinely been priced at above $60 since the summer, leading to concerns about whether the price cap is still effective in denying revenues to the Kremlin. Officials hope to demonstrate that concerted action can hold down Russian prices.
A senior US Treasury official said they considered this “phase two” of the implementation of the price cap. The US was, they said, pivoting to more aggressive enforcement.
The official noted that since mid-October, when they said they began this ramp-up of enforcement action, the discount on Russian oil against market prices had risen from $13 to $18 per barrel.
Russia has largely got around the cap by building its “shadow fleet” — a group of largely elderly vessels with no links to price cap coalition countries that are therefore not bound by the regulations. But it is still reliant on western-linked companies for a portion of its exports.
In recent months, more than a quarter of crude exports have been on vessels with a link to the G7 or EU — even as almost no oil was moved for less than the cap.
The Office of Financial Sanctions Implementation at the UK Treasury said it was introducing the changes to “strengthen the compliance regime and reduce routes for circumvention” and to align with G7 partners.
The senior US official said they were also focused on raising the price for Russia of using its shadow fleet.
As part of this effort, the US Treasury on Wednesday put sanctions on Hong Kong’s Bellatrix and Covart Energy and Dubai-registered Voliton — little-known traders that have grown in prominence since the start of the war. The three companies were listed for “operating or having operated in the marine sector of the Russian Federation economy”.
The Treasury said that since Russia’s full-scale invasion of Ukraine, “Bellatrix has traded tens of millions of tons of crude oil and other products of Russian state-owned oil companies and has received a loan worth hundreds of millions of dollars from a Russian state-owned bank”.