Russian Oil Price Cap Reduction: US and G7 Grapple With Tough Decision

In an article published by Radio Free Europe, the impact of Western sanctions on Russia following the Ukraine invasion is underscored by the ruble’s decline. Advocates within the G7 propose a swift reduction of the Russian oil price cap to tighten Kremlin revenue and guide Putin toward economic stability. Amid the ongoing conflict, Russia’s central bank raised interest rates by 3.5% to address the 30% drop in the ruble.

Experts, Robin Brooks and Aleksandra Prokopenko concur, advocating measures like adjusting the Russian oil price cap to weaken Putin’s economy. However, experts urge caution against hastily reducing the cap, as it could lead to oil price hikes with minimal impact on Russian revenue. G7 leaders remain wary of inflation’s potential effect on Biden’s reelection.

The effectiveness of the Russian oil price cap is debated, influenced by factors like embargoes and OPEC+ cuts. The price-cap policy restricts Western involvement if Russian crude exceeds $60 per barrel. Russia is adapting through parallel infrastructure and evasion. Historically, energy sanctions, including the Russian oil price cap, lose impact over time due to inventive evasion. To counter evasion, suggestions include creating a “whitelist” for authorized traders, banning tanker sales, and closely monitoring Saudi Arabia’s actions and the response of Asian buyers to potential cap changes.