Russia’s ESPO oil blend from the port of Kozmino was selling for around $79 a barrel on Monday, nearly 32 percent higher than the $60 price cap enforced by a coalition of Western nations—a retaliatory measure to curb Moscow’s ability to finance its invasive war in Ukraine.
The ESPO blend was trading in Asian markets at that price level, according to Refinitiv data from Reuters, defying the Western price cap. Russia exports up to 65 million tons of the blend through the Eastern Siberia-Pacific Ocean (ESPO) pipeline, including up to 35 million tons through Kozmino, according to the outlet. Russia, the second-largest oil exporter in the world, refused to abide by the enforcement and has threatened to cut production.
Based on the terms of the regulation—enforced by G7 nations, the European Union (EU), and Australia—Russian oil that is shipped to third-party countries via G7 and EU tankers can only be sold at the $60 price level.
Europe considers the price cap to be a resolute measure to curb Moscow’s finances as major credit institutions and insurance companies, vital to the oil industry, are based within the region. However, Moscow has remained defiant of sanctions, stating instead that continued restrictions are rather counter-harmful to the bloc.
“We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilize the market,” Russian Deputy Prime Minister Alexander Novak said on Sunday, according to Reuters.
Effects on Europe, Consequences for Violation
Russia is holding fast to the argument that Europe will suffer following the prolonging of energy sanctions. “It would probably be unprofessional to conceal the damage that sanctions are causing to European countries, I mean, regarding the sanctions that the Europeans have imposed against us,” Kremlin spokesman Dmitry Peskov told reporters.“This damage is obvious—same as the damage of those sanctions to the German economy, all our specialists, specialists in Brussels, and specialists in Berlin are perfectly aware of that.”
The price cap measure for crude oil will come into effect starting Dec. 5, 2022, and for petroleum products on Dec. 5, 2023.
If a third country ship violates the regulation, “EU operators will be prohibited from insuring, financing, and servicing this vessel” for a period of 90 days after the unloading of cargo. If it is an EU vessel, the member state will be subject to consequences, according to the European Commission.
The price cap measure will be reviewed by the EU and the G7 every two months. “This review should take into account ... the effectiveness of the measure, its implementation, international adherence and alignment, the potential impact on coalition members and partners, and market developments,” the Commission said in the statement.
