Western nations in December imposed a $60 price cap on Russian oil for waterborne exports. The move was designed to punish Russia for its war in Ukraine, and any nation that sells above the price cap can lose access to insurance and financial services that are essential for oil shipments in international waters.
Concessions were available for land-locked countries that had few other options but to continue receiving Russian crude oil through pipelines.
Speaking from London, Eric Van Nostrand, an acting assistant secretary for economic policy at the Treasury Department, said the price cap is working.
"This effort has frozen half of Russia's reserves, impaired the ability of its military industrial complex to field a modern army, and significantly cut into Russia's oil revenues," he said.
Speaking last month on the strength of the economy, Russian Central Bank President Elvira Nabiullina said inflationary risks have increased dramatically at the same time as the world economy is cooling off.
"This is influencing prices for Russian exports, including gas, coal, and fertilizers, that are dropping in the global market," she said. "Thus, the sanctions and the economic cycle are both affecting Russian exports."
Van Nostrand at the U.S. Treasury Department said oil revenues in particular are nearly 50% below year-ago levels, showing Western policies have struck a blow to "the Kremlin's most important cash cow."
Global crude oil prices are on the rise amid supply-side concerns. The situation was compounded on Thursday when Saudi Arabia, an ally to Russia in a group called OPEC+, opted to extend a production cut of 1 million barrels per day to September.
The price for Brent crude, the global benchmark, was trading near $85 per barrel on Thursday. Urals, the Russian benchmark, has stayed close to the $60 range and within cap levels, Van Nostrand said.
"Russian oil is trading at a significant discount to Brent oil, limiting the revenue Russia makes on each barrel it sells," he said.
Russia, however, has shown it's been able to cheat on sanctions by crude oil exports that may be sent on ships that turn off their tracking devices to avoid scrutiny. Van Nostrand, however, said that oil is sold at a steep discount and broader markets have not faced any major detrimental impacts from Western-backed sanctions.
"Since implementation, this decline in Russian revenues has persisted even as Russian crude oil export volumes remain above 2021 average levels," he said. "As a result, since the price cap went into effect, we have seen much more stability in global energy markets than the skeptics feared."
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