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Russian President Vladimir Putin has extended a decree banning sales of Russian oil and petroleum products on conditions of the price cap set by the United States and western governments till the end of 2023. Putin first signed the decree last December, Interfax reported.
Last year, G7 and EU leaders agreed to place a $60 per barrel cap on the price of Russian oil to prevent Russia from continuing to earn a wartime premium and make it harder for Russia to fund its brutal war in Ukraine. The price cap policy is a novel tool of economic statecraft that seeks to achieve two seemingly contradictory goals: restricting Russia’s oil revenues while at the same time maintaining the supply of Russian oil to keep energy costs down for consumers and businesses around the world.
Since then, oil prices have come down considerably from last year's highs with OilPrice contributor Simon Watkins noting that Russia is actually getting a better deal from countries buying Russian crude under conditions of the price cap than countries like India and China that are buying urals at deep discounts.
Sadly, loopholes in the oil supply network are blunting the effects of the price cap.
The World Bank has reported that Russia’s economy will contract a mere 0.2% in the current year, way softer than last year’s 2.1% dip thanks to increased buying by India and China as well as European countries that banned Russian oil imports importing huge amounts of oil commodities from the two countries and also from United Arab Emirates, Singapore and Turkey.
India in particular has dramatically ramped up purchases of Russian oil, with crude imports growing staggering 1,500% in May to over 2.15 million barrels per day in May.
Last month, a report by the Center for Research on Energy and Clean Air (CREA) titled Laundromat: How the price cap coalition whitewashes Russian oil in third countries, revealed that western countries bought $42 billion worth of laundered Russian crude in the form of various oil products from nations that are friendly towards Russia, with India leading the five other countries. For instance, India’s diesel exports tripled to ~1,600,000 barrels per day in March 2023, compared to a year ago, making diesel one of the largest components of India-EU trade.
“Price cap coalition countries have increased imports of refined oil products from countries that have become the largest importers of Russian crude. This is a major loophole that can undermine the impact of the sanctions on Russia,” said the report.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.