WASHINGTON -- The United States said on February 23 that it is targeting Russia’s largest state-owned shipping company and fleet operator for sanctions, saying at the same time that a price cap on Russian sea-borne oil imposed in December 2022 is serving its "twin goals" of limiting Kremlin profits from the sale of oil while promoting stable energy markets.
Deputy Treasury Secretary Wally Adeyemo said in a news release that the targeting of Sovcomflot was the "next step" after the price cap.
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"We are entering the next phase of increasing Russia’s costs in a responsible manner to mitigate risks," Adeyemo said, adding that in addition to the designation of Sovcomflot, the treasury's Office of Foreign Assets Control (OFAC) has identified 14 crude oil tankers as property in which Sovcomflot has an interest.
OFAC said it issued a general license authorizing the offloading of crude oil or other cargo from these 14 vessels for a period of 45 days. In addition, OFAC is issuing a general license authorizing transactions with all other Sovcomflot-owned vessels at this time. Nothing in these general licenses changes any of the restrictions imposed by the price cap sanctions regime.
The Treasury Department earlier on February 23 released an analysis showing that Russia is selling its oil at a steeper discount to global prices since Western governments in October stepped up enforcement of its sanctions regime.
Russia sold its oil at an average discount of $19 last month compared with $12-$13 in October, the U.S. Treasury Department said in a February 23 statement. The Treasury Department oversees U.S. sanctions enforcement.
The United States and the European Union in December 2022 imposed a $60-per-barrel price cap on Russian oil shipped with the use of Western service providers -- such as transportation and insurance firms -- to curtail the Kremlin’s ability to finance its war.
Chris Weafer, the founder of Macro-Advisory, a consulting firm focusing on the countries of the former Soviet Union, said the oil price cap is hard to enforce because the shadow Russian tankers change their names, registrations, and ownership to avoid detection by the United States and EU.
"It is a cat-and-mouse game with the mouse sailing rings around the cat," he said, adding there are dozens or hundreds of small companies owning these shadow tankers.
Russia is the world’s second-largest oil exporter, and foreign sales of the fossil fuel account for more than a third of its federal budget. Most of its sea-borne oil exports used Western service providers prior to the sanctions. The wider discount means Russia is losing out on tens of millions of dollars a day in revenue.
The price cap initially had an immediate effect, driving down the price of Russian oil. However, in the ensuing months, as traders and buyers adjusted to the sanctions regime and as Russia scooped up its own shipping vessels, the discount shrank and Russia’s average selling price surpassed $60.
In response, the United States and Europe in October announced they were stepping up enforcement to curtail cheating. Experts said that market participants were artificially inflating the cost of shipping to hide the fact that Russia’s net price was above the cap. Russia had also purchased hundreds of vessels to avoid using Western service providers.
That month the United States slapped sanctions on two entities and put a freeze on two vessels for violating the Russian oil price cap, a move seen as a warning to other participants.
In January, it sanctioned a United Arab Emirates-based shipping company with 18 vessels that repeatedly made calls to Russian ports.
In its statement, the Treasury Department said the market for Russian oil continues to be highly opaque. It said it will continue to implement "creative solutions" to combat Russia's continuous attempts to avoid the price cap.