The price ceiling set by the West to curb Russia's war spending on Russian oil is gradually losing its effectiveness.
The latest evidence is that data released last Friday showed that the oil and gas tax revenue in the Russian budget for October more than doubled compared to September, and increased by more than a quarter compared to the same period last year. This is completely different from the sudden drop in energy income at the beginning of the year.
The price cap implemented in December last year should have achieved two goals: to ensure the circulation of Russian crude oil in the world market, thereby keeping gasoline prices low, and reducing the revenue from each barrel of crude oil sold by Moscow.
But after achieving the expected results in the initial stage of sanctions, Russia found a way to evade sanctions by using an old fleet of oil tankers to transport oil, and the restrictions on these tankers were limited. The discount on the price of oil sold by Russia relative to international oil prices has narrowed, which has increased Russia's war funds.
US officials are making every effort to strengthen experimental intervention in the international oil market. Insiders said that the US Treasury Department imposed penalties on two oil tankers for violating the aforementioned sanctions rules for the first time last month, and the US is preparing to take more measures to ensure traders comply with the rules.
Insiders say that with many Russian oil trade now taking place outside the jurisdiction of the United States and its allies, the United States and its allies are also discussing how to increase the cost of Russia developing and operating its fleet to evade sanctions. The US Department of Justice will carry out extensive actions to combat violations of energy sanctions against Russia.
The recent influx of oil revenue has helped reduce Russia's budget deficit.
Some analysts say that the size of these oil tanker fleets at Russia's disposal ensures that most of its exports are not subject to the oil price caps set by Western countries.
Natasha Kaneva, head of commodity strategy at JPMorgan Chase, said that the Russian oil cap had been designed to work, but it is now outdated.
The recent influx of oil revenue has helped reduce Russia's budget deficit. Economists now believe that the Russian government may achieve the target of a deficit to GDP ratio of 2%. Some economists predicted in the spring that Russia's deficit to GDP ratio this year would be as high as 5-6%.
Narrowing the deficit will reduce the need to use savings and issue high-cost bonds, thereby alleviating the financing demand pressure of the Russian government to some extent. With the increase in exports, the improvement in Russia's trade situation is helping to alleviate some downward pressure on the ruble, which has stabilized against the US dollar in recent weeks.
The World Bank stated in a recent report that the rise in Russian oil prices indicates that the Russian oil cap is becoming increasingly non binding.
Last week, Ukrainian soldiers in Zaporozhe Oblast. Russia is using oil and gas taxes to fund its war in Ukraine.
The World Bank and other economists say that the new oil wealth will help Moscow provide funding for the Ukrainian war and support the domestic economy, which has been suffering from sanctions. The Russian government plans to increase military spending by nearly 70% next year to over 100 billion US dollars, setting a record since the collapse of the Soviet Union.
Liam Peach, senior emerging market economist at Capital Economics, said, "It seems that the huge income from energy will enable the government to strengthen its war operations without increasing financing pressure
Russian officials have started celebrating the victory. According to Interfax, Russian Deputy Prime Minister Alexander Novak said in October, "I hope everyone is now convinced that the tools developed by G7 are fundamentally ineffective and will only harm the end consumers
Russian Deputy Prime Minister Novak stated that the Western oil price ceiling aimed at curbing Moscow's war spending is invalid.
Even if Russia's revenue rises again, US Treasury officials believe that price caps have forced Russia to build its own shipping infrastructure to evade Western sanctions, thereby diverting Moscow's war resources.
Eric Van Nostrand, Acting Assistant Secretary for Economic Policy at the US Treasury Department, said at a recent event organized by the Brookings Institution that "purchasing oil tankers greatly increases the difficulty for the Kremlin to purchase tanks." He said that stricter enforcement of sanctions would force Moscow to either sell more oil according to price caps or spend more money on the logistics system needed to evade sanctions.
The United States has proposed a series of suggestions to port management that may increase Russian costs, including requiring ships to prove that they have sufficient capital insurance to navigate in their waters, but it is currently unclear whether foreign shipping officials will adopt the United States' suggestions.
The oil price ceiling works by allowing Western companies to transport, trade, or insure Russian oil, but only if the Russian oil price remains at or below $60 per barrel, otherwise it will face punishment from the United States and its allies.
The strategy of Rosneft and its trading partners is to establish their own shipping network. According to research from the Kyiv School of Economics, as of September, Russia has a shadow fleet of 180 oil tankers transporting oil and refined oil from Russian ports. Its biggest customers China, India and Türkiye do not follow the western price ceiling.
According to S&P Global data, more than half of Russia's crude oil exports are currently insured by non G7 countries, up from approximately 35% in January.
According to Argus Media, a commodity data provider, the recent trading price of Ural crude oil, a major Russian crude oil variety, is around $74 per barrel. This price is still below the global benchmark Brent crude oil of approximately $88 per barrel, although the price difference between the two has narrowed significantly in recent months.
Analysts from the Center for Strategic and International Studies say that traders have to some extent avoided the oil price ceiling by artificially inflating shipping costs. They say that the documents on which sanctions rely are difficult to enforce. This is an instrument called 'certification' that ensures that a trade meets the oil price ceiling.
Maria Shagina, a researcher at the International Institute for Strategic Studies, said, "The effectiveness of the price ceiling has weakened, but this does not mean it cannot be restored
She said that Western officials should improve law enforcement, impose strict liability for violations of the oil price limit, tighten document requirements to prevent authentication fraud, and investigate inflated transportation and insurance costs.