The price cap on Russian oil has so far failed to stop Moscow from earning revenue for its war against Ukraine, witnesses told the U.K. Parliament this week. While one witness said the U.K. should consider placing new restrictions on certain energy purchases from companies that are still buying Russian oil, another said that may be too complicated for businesses to comply with.
Both Hermitage Capital Management CEO Bill Browder, an investment adviser who helped create the first Magnitsky-style human rights sanctions law in the U.S., and Richard Bronze, co-founder of data intelligence firm Energy Aspects, said the price cap (see 2312200031) isn’t working. Although the cap, set at 60% per barrel for Russian crude oil, was designed to limit the profit Moscow could earn through Western traders and service providers, Browder said the country has instead turned to India, China, Turkey and other nations that aren’t part of the price cap coalition.
“The big, big, big, big loophole is the sale of oil,” Browder told the Parliament’s Treasury Committee during a hearing about whether Western sanctions against Russia are working.
Bronze said Russia has also been able to continue selling oil to the West by hiding its origin. He said “a lot of circ*mstantial evidence” shows Russian oil frequently moved above the price cap last year, “potentially with forged or misstated documents provided to the maritime service providers.”
The Group of 7 countries, the EU and Australia earlier this year warned shipowners, insurance agents and others about tactics Russia has been using to evade the cap (see 2402010042). That includes a shadow fleet, which typically includes older ships with false registrations, to transport sanctioned goods (see 2310240068).
“The idea, the premise at the heart of the price cap, was that access to these Western maritime services was so important that it would give buyers in third countries the leverage to force Russia to sell its oil below the price cap, and I just never think we've seen that behavior,” Bronze said. “I think the idea of the oil price cap, the theory was there, but I think in practice it just hasn't worked.”
Browder said the “best way” to limit Russia’s funding for its war is to slash its oil profits, and the U.K. can start by sanctioning foreign companies in China, India and elsewhere that are buying Russian oil above the price cap. He also suggested the U.K. could explore restrictions against shipments of refined petroleum products from those companies that were processed with Russian oil.
The U.K. last year bought $2.2 billion worth of products from refineries that purchased Russian oil, Browder said. “We should think about either applying sanctions to these refineries or creating some type of legislation where we're not allowed to buy oil from these refineries or its source,” he said.
Bronze also said price cap coalition members are buying from foreign refineries that are processing Russian crude oil, but he also said those shipments make up a relatively small amount of the price cap countries’ imports, especially in the U.K. “It’s probably well below 5% of our total imports,” he said of the U.K., “but there will be some.”
It would also be “technically quite complex” for the U.K. to implement new restrictions on purchases of foreign energy products processed with Russian oil, Bronze said, because refineries use crude oil from a range of sources. Determining which products were processed with Russian oil would be a compliance challenge.
If a refinery is “processing from different sources, the question would become: would you prohibit all exports from that refinery, or would you introduce some sort of mechanism to say: we only want to prohibit the molecules that started out in Russia and have been processed?” he said. “There are approaches you could potentially implement, but I think they become very tricky.”
The price cap is already “quite a complicated mechanism,” Bronze said. “If you added a layer like this, it would add more complexity for the industry to manage.”
Several members of Parliament also asked the witnesses whether the U.K. should try to seize sanctioned Russian assets and give the money to Ukraine to help the country's war effort. Browder said the U.K. should pass a law similar to the U.S. Repo Act, which was included in a recent government spending package and allows the president to confiscate certain Russian assets to support Ukraine.
"What I would suggest is done here is some version of the Repo Act," Browder said. "If the West, the U.K., U.S., EU and other allies were to confiscate" Russian assets for Ukraine, it "would change the whole nature of the war."
