Another embargo comes into force on February 5th. Manage your expectations
Save time by listening to our audio articles as you multitaskTwo months in, plenty of people seem to think that the cap is a big success. A second round of European sanctions, on diesel and other refined products, is due to come into force on February 5th. Unfortunately, our reporting suggests that the scheme is not biting.
An advocate of the price cap would say that this is proof of the scheme’s success. The point, after all, was to ensure that Russian oil continued to flow, keeping the global market stable, but to limit the price of it so that the profits for Russia’s president, Vladimir Putin, were kept in check. The cap, they argue, gives buyers negotiating power; the longer export routes also raise freight costs, for which Russia must compensate customers.
The problem, however, is that price-reporting agencies have not adapted their methods to a world in which Russian oil no longer sells through channels they can observe. Whereas European refiners and traders used to share data with price-trackers, Indian ones do not. Agencies also used to rely on publicly available indicators to estimate shipping costs between Russia’s western ports and European oil terminals. Rates for ferrying oil from Russia to Asia, by contrast, are set in private.
Even more striking is the extent to which Russia’s export machine has become less reliant on the West’s shipping and financing infrastructure, and has therefore escaped the scope of sanctions. As we report this week, a shadow trade that uses a parallel system is. Before December, more than half of western Russian crude was handled by a European shipping or financing firm. That share has since fallen to 36%.
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