SUPERNEWS

Macro

G7's Russia Oil Cap Fails as 800 Tankers Join Shadow Fleet

G-7's $60 Russian oil price cap faces enforcement hurdles as 800 tankers join shadow fleet, undermining sanctions.

By Mackenzie Crow

ᐧ

4/29, 11:10 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • G7's Russia oil price cap deemed increasingly unenforceable, with 800 tankers moving to a shadow-fleet, evading oversight.
  • April data shows only 16% of Russian cargoes covered by International Group members, highlighting the cap's diminishing impact.
  • Insurers criticize UK sanctions enforcement and call for dialogue with China and India, the main buyers of Russian oil.

Enforcement Challenges of Oil Price Cap

The Group of Seven's (G-7) initiative to cap the price of Russian oil at $60 a barrel is facing significant enforcement challenges, as highlighted by the International Group of P&I Clubs. This organization, central to the global insurance industry, has observed a notable shift of approximately 800 oil tankers into a shadow fleet, evading the coverage of member organizations. This migration undermines the effectiveness of the price cap, designed to limit the Kremlin's revenue from oil exports. The International Group's submission to a UK government inquiry underscores the difficulty in ensuring traders adhere to the price cap, with no practical means for insurers to verify the authenticity of transactions.

Waning Influence of G-7 Measures

The influence of G-7 nations on Russian oil trade is diminishing, as evidenced by the declining share of tankers moving Russian oil with coverage from an International Group member. In April, only 16% of Russian oil cargoes were insured by the International Group members, marking the lowest level since the beginning of 2023. This trend indicates Russia's success in diverting its oil trade away from Western oversight, reducing the dependency on services provided by G-7 countries and their allies. The requirement for firms to obtain attestations proving the oil transported costs $60 a barrel or less has proven to be a weak enforcement mechanism, given the lack of verification methods and the continued movement of Russian barrels priced above the cap.

Criticism of UK Sanctions Enforcement

The International Group has also voiced criticism towards the UK's approach to enforcing the sanctions on Russian oil. The organization argues that its members should not be burdened with the role of sanctions enforcement, a task that extends beyond their operational scope. This critique points to the need for a clearer and more effective framework for sanction enforcement that does not overly rely on the insurance industry. Furthermore, the submission calls for a dialogue between G-7 nations and major buyers of Russian oil, such as China and India, to ensure compliance with the price cap, highlighting the global nature of the challenge.

Management Quotes

  • International Group of P&I Clubs:

    "The policy appears increasingly unenforceable as more ships and associated services move into this parallel trade... is concerned that increasing responsibility and obligations on companies in the G-7 coalition will result in a further migration of trade activities and ancillary services outside of the G-7."