March 15, 2024

A New Approach to Sanctions Is Pushing Up Energy Prices and Crimping Russia’s Revenue

By: Rachel Ziemba

The cat-and-mouse game between authoritarian energy powers and the U.S. and its allies often seems unwinnable. Russia, Iran, and Venezuela all have continued to export energy despite Western sanctions. But there are indications that the sanctioning countries might finally be having some success. They’re using the policy tools they built last year to potentially restrict their adversaries’ revenues and push global energy prices higher.

Heightened U.S. sanctions enforcement has also raised the importance of China as the buyer of last resort for Russia.

Few in the West were ready to do without supply from Russia, one of the world’s largest energy producers or, pay the financial cost of quitting it, particularly not if other producers like Iran and Venezuela were also sidelined. The solution was a price cap, a maximum price placed on purchases of Russian oil shipped with Western services such as insurance. The Group of Seven, along with other allies, adopted the policy in 2022. Only recently did they shift into enforcement mode on this policy, and coupled it with new threats on Russia’s non-energy trade.

This shift has been a long time coming, and there are signs it is having an effect. Russian fuel export volumes are down, including to major buyers such as India, who may be using the tighter environment to negotiate on price. Discounts on fuel are up. Sanctions-sensitive shippers—European Union companies—are also finally exiting the trade.

Read the full article from Barron's.

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