The Group of Seven (G7) coalition, led by U.S. Deputy Secretary Wally Adeyemo, has shifted its focus from reducing Russian revenues to raising the cost of shipping Russian oil. Adeyemo made this announcement at the Reuters NEXT conference in New York, stating that Russia’s investment in a shadow fleet of tankers and the associated insurance was eating into Moscow’s profits and hindering its ability to fund the war in Ukraine.
The aim of this shift in focus is to limit Russia’s income and prevent it from using those funds for its “illegitimate war” in Ukraine. Adeyemo cited estimates that the price cap imposed on Russian oil had increased Moscow’s costs by up to $35 per barrel, while also reducing its revenues by 40% to 50%.
Adeyemo emphasized that the purchase of tankers by Russia, though costly, was preferable to spending money on tanks. Now, Russia owns a fleet of inadequate tankers that are struggling to transport its oil with their insurance. The new goal is to target Russia’s costs rather than solely focusing on its revenue.
Last month, Reuters reported that Russian crude oil producers were benefiting from the cheapest shipping costs to refiners in China and India in almost a year. This is due to a growing number of vessels operating outside the control of Western governments. These vessels allow Russian firms to earn more than the $60 per barrel cap that the U.S. and its allies had intended to impose on Russia through sanctions. Consequently, enforcing the price cap will have limited impact on Russian revenues.
In December 2022, the G7 countries and Australia implemented sanctions prohibiting shippers or insurers domiciled in member countries from facilitating Russian oil exports when the price exceeds $60 a barrel. However, these sanctions do not apply to shipping companies or insurers from other countries, regardless of the price.
Adeyemo highlighted that the price cap has significantly increased Russia’s costs by forcing it to transport oil over longer distances and build its own ecosystem that lacks the economies of scale enjoyed by Western countries.
The focus now is on enforcing the existing price cap while taking additional steps to further increase costs for Russia. However, no specific details were provided regarding these additional measures.
Overall, the G7-led coalition seeks to limit Russia’s income and prevent it from funding its “illegitimate war” in Ukraine by targeting the cost of shipping its oil.
