The G7 price cap on Russian oil imports set to start December 5 has been touted as the biggest step yet in defunding the Russian war machine. But experts aren’t so sure.
Catch-up: Last month, G7 nations agreed to impose a cap on the price of Russian oil imports in a bid to reduce Russia’s energy revenue and, as a ‘lil bonus, curtail energy prices.
- To enforce it, London-based ship insurers (which cover about 95% of the world's oil tankers) are not allowed to insure any vessels carrying oil sold above the cap price.
Driving the news: This plan’s all well and good in theory, but in practice, Russia should be able to secure enough tankers to ship 80-90% of its oil unabated, experts told Reuters.
- Russian oil could flow outside the capping mechanism with a ‘shadow fleet’ of ships arriving from non-Russian countries that are either Russian-insured or self-insured.
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Iran and Venezuela have effectively used similar strategies to move their oil around US sanctions, though Russia would have a harder time since it exports way more oil.
- One expert told Reuters, "All it's going to do is reroute oil… and make life difficult for everyone else, which is what is happening right now anyway."
Why it matters: Russia earns ~US$20 billion every month from oil exports. Slashing this revenue won’t be enough to stop Russia from funding the war in Ukraine, but it’s a start.
- The plan has yet to get buy-in from India and China, whose participation is crucial for it to work, given Russia’s threat just to stop selling oil to any country using the cap.
- Convincing India and China to join the cap isn’t out of the realm of possibility (it would mean cheaper energy), but the G7 can’t afford to hold its breath until they sign on.
Zoom out: This workaround would force Russia to use worse insurance and conduct longer, costlier voyages—which could be enough of a pain to surrender to the price cap, eventually.