The price cap on oil

Intended effects

The price cap on Russian oil, which is currently set at $60 per barrel, is an important element of the EU and G7's sanctions on Russia. The price cap is designed to limit Russia's ability to profit from oil exports, while still allowing Russia to continue to export oil, which is important for global energy supplies.

The cap works by prohibiting shippers and insurers from facilitating the transport of Russian oil if the price exceeds the cap. This makes it more difficult and expensive for Russia to export oil.

Same magnitude of oil revenues (budgeted by the Kremlin) as for the war effort - a third of all government expenditures, or 100 billion dollars.

Actual effects on Russia, including circumvention

The price cap is estimated to have significantly reduced Russia's oil revenues, though the exact impact is difficult to measure. Some estimates suggest that the price cap has reduced Russian oil revenues by around $5-10 billion per month, which is a significant amount, especially given that oil exports are one of Russia's biggest sources of revenue. This reduction in revenue has had a knock-on effect on Russia's economy. However, it's important to note that Russia has been able to find other ways to export its oil, including through countries that are not participating in the price cap and by using a shadow fleet, so the full impact of the price cap is not yet fully understood. Various forms of manipulation in price information, insurance and shipping which means that the price ceiling is more often avoided. The discount has gradually decreased, from 40 dollars per barrel to 14 dollars per barrel. As of October 2023, the weighed average for Russian crude in October 2023 slipped to $80.66 per barrel, according to the IEA, due to generally weaker global oil prices. This is well above the $60 cap imposed by the G7.

Knowledge gaps: what can we never know?

The use of unregistered and uninsured oil tankers, together with the lack of access to official trade data, makes it difficult to track what exactly happens. Prices can be tracked at ports, volumes are more subject to uncertainty.

Effects on sanctioning countries

The price cap caused some disruption in global energy markets, especially in the beginning, as countries scrambled to find alternative sources of oil, and turbulence in price.

The shadow fleet is also linked to a high risk of environmental damage.