The U.S. and EU-applied price cap on Russia’s oil have “sharply” reduced the Kremlin’s income, U.S. Treasury Secretary Janet Yellen said on Thursday at the G20 meeting in India.
“We’ve continued to see emerging markets negotiate deep discounts on Russian oil which keeps oil in the global market but sharply reduces the Kremlin’s take. The way I see it, our sanctions have had a significant negative effect on Russia so far. While by some measures, the Russian economy has held up … Russia is now running a significant budget deficit,” Yellen said.
The price cap on Russian crude oil, which went into effect on December 5, was designed to reduce Russia’s oil revenues while allowing crude oil to keep flowing to prevent a spike in prices. Two months later, on February 5, another price cap went into effect—on Russia’s crude oil products such as diesel.
Critics of the price cap argued that the price cap would be largely ineffective, with Russia’s crude oil merely changing destinations from Europe to India and China—two countries not abiding by the price caps.
The crude oil price cap was set at $60 per barrel, although the Russian Urals grade traded at less than $50 in January, so Russia’s crude was already selling well below the price cap.
In December, Russia’s President Vladimir Putin banned the supply of Russian crude oil and crude oil products to any company abiding by the price cap as of February 1, 2023.
Yellen has been a staunch support of the oil price cap mechanism. “The caps we have just set will now serve a critical role in our global coalition’s work to degrade Russia’s ability to prosecute its illegal war. Combined with our historic sanctions, we are forcing Putin to choose between funding his brutal war or propping up his struggling economy. And, we are disrupting Russia’s military supply chains, making it harder for the Kremlin to equip its troops and continue this unprovoked invasion,” Yellen said earlier this month in a statement.
By Julianne Geiger for Oilprice.com