According to a senior Treasury Department official, Russia's revenue is being reduced by the oil price ceiling strategy.
Wally Adeyemo, deputy secretary of the treasury, said yesterday at the Center for a New American Security (CNAS): "In just six months, the price ceiling has contributed to a considerable drop in Russian revenue at a vital juncture in the war. Russia is already thinking of making a series of drastic adjustments to its tax code that would institutionalize the growing discount on Russian oil.
The G7, EU, and Australia-led price cap coalition set a ceiling on the price Russia could charge for its crude oil in December if it was traded using services provided by a coalition member. Specifically, if a shipment of Russian crude was sold with insurance or shipping from a coalition member, it could not be sold for more than $60.
The Russian government's oil income in the first five months of 2023, according to Adeyemo, were down about 50% from the same period in the previous year, making the price cap a success. Despite the fact that Russia is currently exporting more crude oil than it did at the start of the war, the country's oil revenue has decreased. Despite increased exports, Russia is losing money since Russian oil now trades at a 25% discount to other global oil, according to Adeyemo.
In response to the price gap between Russian oil and the price on the international market, Russia is apparently working to modify the way it taxes oil.
The modifications the Kremlin has proposed would calculate taxes by assuming a price that is a fixed large discount to Brent, the global benchmark, as opposed to continuing to tax Russian oil sales based on the market price of Russia's dominant blend of oil—Urals. This strategy would result in higher taxes for Russian oil companies even as the price cap continued to reduce their actual income.
"When it comes to the price cap, either Russia continues to accept the significant reduction in their energy export prices that our measures have imposed, or they institutionalize it themselves with these changes to their tax system," Adeyemo added.
The treasury official then talked about the significant expense Moscow had to cover in order to ship its cargoes.
In order to ship oil without utilizing western services, the Kremlin is also investing in creating its own seaborne oil ecosystem, according to Adeyemo, who used the example of the Russian central bank's decision to guarantee about $9 billion in a reinsurance scheme meant to displace western reinsurance.
Adeyemo stated that the US and allies have put pressure on insurers and ship registries to drop companies that export oil in violation of the price ceiling restrictions, despite the fact that Russia was still finding methods to get around it.
Last month, the leaders of the Group of Seven countries pledged to take down on those who were avoiding the system of price caps imposed on Russian oil. The US followed the UK in implementing further penalties, many of which were directed at Russian-affiliated shipping companies.
In the meantime, there have apparently been lengthy and contentious discussions on the EU's upcoming round of sanctions against Russia.
This week, Brokers BRS said that tighter regulations on ship-to-ship transfers of Russian oil in EU waters as well as EU restrictions on ships that turn off their automated identifying systems were under consideration.
