This paper explores the design and impact of the price cap on Russian oil, implemented by the G7 and other coalition members. Unlike typical price caps, which tend to reduce supply by discouraging production, this cap targets only Russian oil revenues, by design allowing the oil to reach the global market and keeping the global oil prices competitive. The cap is meant to weaken Russia’s financial ability to sustain the war in Ukraine by limiting its oil revenue and simultaneously negatively affecting ruble exchange rate. The cap also allows, by design, non-coalition countries like China and India to continue purchasing Russian oil. This way, it limits Russian foreign revenues without inducing oil price shocks. Challenges include potential fraud in compliance declarations (providers buying oil over the cap due to falsified information).
Early results in 2023 show a 49% drop (relative to March-November 2022) in Russian oil-related revenues from the prior year, while oil production remained unaffected (it even increased), and global oil prices did not surge, suggesting the cap’s efficiency in achieving its goals. Approximately 60% of energy shipments and 75% of product shipments from Russia were still processed by the EU, G7, and Norway. The study also mentioned potential longer-run issues, such as a decreasing impact over time, as the credibility of lowering the cap has decreased, and adjustments to the Russian tax system to increase government revenue from oil sales.
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