Ten months after Western allies imposed a $60 per barrel limit on Russian oil sales, this cap is facing its most significant test. While initially largely symbolic, it now plays a crucial role as oil prices rise, preventing the Kremlin from using extra profits to fund its war in Ukraine. Recent enforcement efforts have begun, as Russia's oil income grows, in part due to the Israel-Hamas conflict pushing up global oil prices.
The cap's effectiveness depends on compliance from Western shipping companies, as many vessel owners and insurers are based in countries that imposed the price limit. However, the cap currently relies on good-faith disclosures, with actual sales contracts not required to be revealed, leaving room for unscrupulous sellers to manipulate prices.
Evidence of enforcement emerged when the U.S. Treasury Department sanctioned ship owners involved in carrying Russian oil above the price cap. The UK is also actively investigating suspected breaches.
Another challenge is that the cap is set as oil leaves Russia, not at the point of sale, potentially allowing traders to add "transportation costs" and keep the difference.
While Russia does not recognize the cap, U.S. officials point to the combined impact of the cap and Europe's ban on Russian oil, causing significant financial losses for Moscow.
Overall, the effectiveness of the price cap is mixed, with opportunities for circumvention and challenges in enforcement. It remains a tool in the Western allies' efforts to limit Russia's oil income, which significantly funds its military activities.