Biden Administration Imposes Sanctions on Russia for Oil Price Cap Violation

In recent developments, the Biden administration is unveiling a series of measures designed to increase the cost of Russia’s efforts to bypass a limit placed on the price of its oil. This move is part of a broader Western strategy to more rigorously enforce a price cap that was initially introduced nearly a year ago.

A senior administration official emphasized that the US Treasury Department will impose sanctions on two entities and designate two vessels as blocked property. These actions are taken in response to vessels using price cap coalition services providers while transporting Russian crude oil above the agreed-upon price limit. The official stated that these measures convey a clear message to Russia about the West’s unwavering commitment to compelling Russia into two costly options. Any attempts to go beyond these boundaries will face a unified and decisive response.

The United States and its allies firmly believe that the price cap is effectively diverting funds that Russia could otherwise allocate to the procurement of military equipment, such as tanks and armored vehicles, for use on the battlefield.

The newly announced sanctions primarily target the unauthorized fleet of ships that the Kremlin has assembled over the past year. These ships have been deployed with the intention of transporting Russian oil and oil products and selling them above the price limits set by Western nations.

One of the key objectives of these measures is to significantly increase the financial burden on Russia in the upcoming phase. In addition to these sanctions, the G7 price cap coalition is reiterating its concerns about the risk of violating price cap rules in a joint statement.

The policy-making process for these measures has been in progress for several months. In December 2022, the United States, its G7 allies, and Australia collectively banned the purchase of Russian oil that exceeded $60 per barrel, provided it was shipped, insured, or financed by Western entities. The primary aim of this policy was to cut off revenue streams to Russia, which were being used to fund the country’s invasion of Ukraine, while ensuring that sufficient oil remained available to limit disruptions for global consumers.

However, the Kremlin has been actively seeking alternative means to ship, insure, and sell energy above the imposed price cap. Treasury Secretary Janet Yellen noted earlier that there had been a “reduction in effectiveness” of the price cap due to recent market prices for Russian oil.

Janet Yellen is expected to discuss the price cap and its enforcement with her G7 counterparts in Marrakech during the annual meetings of the International Monetary Fund and World Bank. Yellen emphasized that the policy had “significantly reduced Russian revenue” while acknowledging that Russia had been investing heavily in building an alternative ecosystem for exporting energy products.