May 19, 2023 - Economy

U.S. takes a victory lap on Russian oil price cap

Data: Russian Ministry of Finance, IEA; Chart: Thomas Oide/Axios

The G7 price cap on Russian crude oil seems to be working, and the Treasury is making sure you know it.

Why it matters: Russia's oil exports generate money to pay for the government's war on Ukraine.

  • Soon after the invasion, global oil prices soared, basically giving Russia a financial windfall from the instability its attacks caused in oil markets.

The background: Ukraine's allies needed to find a way to curtail the flow of oil money Russia was collecting. But at the same time, they needed to ensure Russia kept producing oil.

  • Without crude from Russia — the world's third biggest producer — the global economy would face a major energy and inflation crisis.
  • In December, the G7 group of advanced economies, along with allies, agreed to a never-before-attempted plan to impose a price cap of $60 a barrel on Russian crude oil.

The latest: In a report issued yesterday, the Treasury Department — which led the push for the buyers' cartel aimed at Russian crude — said that the program appears to be working.

  • "Following the implementation of the price cap policy, Russia’s oil revenues have fallen substantially compared to both pre-war levels and the elevated level at the onset of the war," the Treasury said in its report.
  • "Despite selling a consistent volume of oil, Russia makes far less revenue on each barrel because its oil now trades at a significant discount relative to Brent crude, the global benchmark oil price," the report said.

Yes, but: The program won't bankrupt Russia or make it impossible for the Kremlin to prosecute the war. Russia is still collecting billions each month in revenue from oil and gas exports.

The bottom line: Still, the discount on Russian crude oil is making the financial costs of the war harder for Russian society to manage, something even Russia's finance minister has recently admitted.

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