Ben Harris, a former senior official at the US Treasury who helped design the oil price cap, said the Group of Seven (G7) nations and the European Union need to crack down on Russia’s evasion of the limit and raise the price level, making it a painful but tolerable option for Moscow.

“If you’re going to commit to at least a moderate level of enforcement, then you have to commit to a high enough level of the price so that Russia doesn’t shut in the oil or look for alternative avenues for shipment,” Harris, now director of economic studies at the Brookings Institution in Washington, said in an interview.

Conceived in mid-2022 and imposed last December, the price cap on Russia’s seaborne petroleum exports aimed to limit Moscow’s oil revenue while softening the blow on the global economy from sanctions enacted after Russia’s invasion of Ukraine. It prohibits firms based in the EU and G7 countries from involvement in the transport of Russian oil unless it’s priced under $60 a barrel.

These nations don’t purchase Russian oil but firms based there still provide crucial services including shipping, financing and insurance.

Working in tandem with other sanctions, the cap initially seemed to work: Moscow kept exporting even as the measure suppressed its profits. But in recent months, the rule has had less bite as Russia found ways around it.

The spread between Russia’s Urals oil and Brent, a global benchmark, has fallen to about $9 from around $30 when the cap first came into effect, signalling that Moscow isn’t losing out on as much revenue as before.

Russia bought its own fleet of ageing vessels and backed it with its own insurance, as alternatives to Western services, allowing it to move more oil outside the cap.

Enforcement inside the cap has also proved flimsy, as evidence mounts that Western firms are being used for Russian cargoes purchased well above the $60-a-barrel cap.

One group of researchers found that in early 2023, half the oil from Russia’s Pacific port of Kozmino was carried or insured by Western firms, but almost all of the port’s export volume was priced above the cap.

“The first thing you could do is simply begin more aggressive investigation into the attestation regime,” Harris said, referring to the pricing documents that service providers must collect for any shipment of Russian oil they back. “Put companies on notice that the attestation system will be taken seriously.”

Harris said that as a second step, the coalition should pressure countries that control key passage points — like Denmark, Turkey and Egypt — to turn back Russian vessels that represent an environmental threat because of their age or lack of reliable insurance.

Finally, Harris said, countries need to raise the cap’s price level and then adjust it, up or down, more frequently in response to moves in global prices.

“You need a price cap which both preserves as big a spread as possible but still allows for a reasonable level of trade,” Harris said.

Veon exits Russia after selling unit to local executives

Veon said on Monday that it had completed the sale of its Russia unit to senior country managers, capping months of negotiations to exit the country after its 2022 invasion of Ukraine.

VimpelCom was sold to the local management team led by Chief Executive Officer Alexander Torbakhov, the Amsterdam-headquartered telecommunications company said in a statement. The deal doesn’t provide for any buyback arrangements.

Veon said in November that it planned to sell the Russian unit for 130 billion roubles ($1.3-billion). The amount would primarily be paid by taking on Veon’s debt.

The company had said the disposal represented the “single most material deleveraging action” available to it while increasing its prospects for access to international debt markets.

Veon was founded in Moscow in 1992 as VimpelCom, one of Russia’s first cellphone providers. It then expanded operations across countries including Ukraine, Pakistan, Kazakhstan and Bangladesh and now has about 160 million customers.

Yellen says US eyes Russia oil-cap crackdown as potency fades

Treasury Secretary Janet Yellen said the US was preparing to crack down on evasion of the Group of Seven’s price cap on Russian oil, as recent market prices signal that the mechanism may no longer be working as hoped.

In an interview with the Wall Street Journal, Yellen said the US was “looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap”.

The oil price cap and its enforcement are expected to be on the agenda in talks between Yellen and her fellow G7 finance chiefs in Marrakesh, Morocco, this week — on the sidelines of an annual gathering of the World Bank and International Monetary Fund.

Yellen plans to tell her counterparts at the IMF meetings that supporting Ukraine remains a top priority, she said in another interview with the New York Times, while calling on Congress to authorise additional funding for Kyiv.

“Fundamentally we have to get Congress to approve this,” Yellen told the New York Times. “There’s no gigantic set of resources that we don’t need Congress for.”

Russia resumes seaborne diesel exports after ban lifted

Russia resumed overseas diesel shipments over the weekend, after the government lifted an unprecedented ban that roiled global markets for the fuel.

Transneft, Russia’s crude and product pipeline operator, restarted loading of oil products on Saturday, based on requests from producers that were confirmed by the energy ministry and cleared by customs, said spokesperson Igor Dyomin.

Moscow allowed seaborne diesel exports to resume on 6 October, just over two weeks after it imposed the ban to rein in surging domestic prices for automotive fuel. The return of flows provides relief to an oil market already tightened by Saudi Arabia and Russia’s curbs on supplies of crude that is rich in diesel.

While Russia has lifted the ban on seaborne flows, some limitations are still in place under new rules. Exports must be delivered to Russian ports by pipeline, and producers are required to keep at least 50% of their diesel output at home.

In addition, Russia has imposed a diesel-export quota on fuel producers, which in October shouldn’t exceed their average overseas shipments in the past eight months, Interfax reported on Monday, citing First Deputy Energy Minister Pavel Sorokin.

Diesel supplies via railways remain banned, in an effort to replenish the domestic market and to prevent an increase in wholesale prices, Deputy Prime Minister Alexander Novak said at a government meeting on Monday. DM