Insiders told Reuters that due to the global rise in crude oil prices, the trading price of most Russian crude oil has already exceeded the review cap set by the Group of Seven (G7), leading the G7 and its allies to suspend the regular review of their plan to cap Russian oil prices.
In December last year, the Group of Seven (G7) along with the European Union and Australia implemented a price cap review mechanism for Russian oil and applied a price cap on Russian fuel from February this year. Initially, EU countries agreed to review the price cap every two months and adjust it if necessary, while the G7 would "at their discretion" review the "implementation and compliance" of the price caps.
The price cap review mechanism allows third countries to use Western ships and insurance to purchase Russian fuels, provided they can prove that the purchase price does not exceed the price limits of 60 US dollars per barrel of crude oil, 45 US dollars per barrel of heavy fuel oil, and 100 US dollars per barrel of lighter fuels such as gasoline and diesel. This idea was proposed by the United States, aiming to cut Russian revenue amidst the conflict in Ukraine, while somewhat mitigating the supply risks for the EU following a potential Russian oil embargo.
Russian producers have found ways to circumvent Western ships and insurance services to sell oil, with companies facilitating Russian trade outside the G7's review scope, making it difficult for the G7 and its allies to enforce the existing price cap review mechanism.
However, since March this year, the G7 has not assessed this cap. Four individuals familiar with G7 policies stated that the G7 and its allies have no immediate intention to adjust the plan. Sources say that despite energy supply concerns causing some EU countries to wish to reassess the mechanism, there is almost no willingness among the US and G7 member states to make any changes.
Supported by the Opec+ policy of extending production cuts, the two major international benchmark oil prices, WTI and Brent, have reached new highs since the beginning of the year, driving up global crude oil prices, including Russia's Urals crude. Russia's Finance Ministry stated that the average price of its flagship Urals crude in August has rebounded to 74 US dollars per barrel, not only higher than the average price of 56 dollars in the first half of the year but also far above the G7's set limit of 60 dollars.
After the implementation of the G7 and its allies' price cap review mechanism, struggling to find enough ships for oil transport, Russia was forced to cut the export scale of oil and oil products. However, as Russian domestic and non-Western ships fall outside the review mechanism's scope, Russia has mostly handed over its exports to these types of ships. According to calculations by Reuters, between March and June, at least 40 intermediaries, including companies that had not previously dealt with Russian business, handled at least half of Russia's crude and refined oil exports.
An industry insider noted that although Russian crude is mainly transported by the "dark fleet" of unknown ownership, more and more Western ships that are difficult or impossible to regulate are beginning to join the Russian crude oil transportation fleet.
Data from the London Stock Exchange Group (LSEG) shows that since mid-July, the trading price of Russian Urals crude oil has consistently been above the cap, as have the prices of Russian refined products like fuel oil and diesel.
