The price cap: a sanction designed not to remove the oil
An embargo removes a supplier from the market and the price goes up. The cap that took effect in December 2022 tried something subtler: let the oil flow, but cap what could be earned from it.
This is the sanction I find most interesting technically, because it was designed against a real constraint: an outright embargo by the largest consumers would have raised the world oil price, which would have increased the revenue it was meant to reduce.
So the mechanism used a different lever. Most seaborne oil moves on ships insured in a small number of Western markets. From 5 December 2022, those shipping, insurance and financial services could be provided for russian crude only if it was sold below an agreed price. Refined products followed in February. The eighth package in October had put the legal basis in place; the ninth followed in December.
Judging it honestly
It was circumvented — a shadow fleet, alternative insurance, opaque intermediaries — and enforcement has been an argument ever since. But the design deserves recognition. It kept supply on the market and attacked the margin instead, which is a considerably more sophisticated instrument than a ban.
Share this analysis
Comments