In an unexpected turn of events, the Group of Seven's (G7) decision to implement a $60 per barrel price cap on Russian oil has resulted in an inadvertent boost for Moscow. The move, originally intended to limit Russia's revenue from natural resource exports, has seen the country's net oil revenues almost double, rather than weaken its financial position as anticipated.
Russian Oil Exports Soar
Contrary to expectations, seaborne oil exports from Russia increased by 10% last month, surpassing pre-2022 levels. Exports reached a staggering 3.37 million barrels a day, well above the average of 3.1 million barrels a day. This surge in exports has led to a significant rise in Russia's revenue from crude sales. Between April and October, net oil revenues reached $11.3 billion in October alone, accounting for 31% of Russia's total net budget revenue for the month.
Unintended Consequences of the G7 Price Cap
The G7's price cap strategy has inadvertently established a floor price for oil, complicating the price discovery process during demand crises. This could contribute to a so-called commodity super cycle by increasing reliance on the Organization of the Petroleum Exporting Countries (OPEC) and Russia. Moreover, the measures have inadvertently benefited non-EU countries like China, which continues to import Russian crude at a discount.
The Fragile Alliance Against Russia
The effectiveness of the G7's strategy is further called into question as Japan, one of Washington's closest allies in Asia, has negotiated exceptions to the cap. This highlights the fragility of the alliance against Russia and underscores the challenge of enforcing the cap in a volatile market. With OPEC also indicating a willingness to deepen oil production cuts in early 2024 to counter market volatility, the global energy landscape is set to undergo significant changes.
Overall, the G7's strategy has unintentionally subsidized China and deepened global dependence on Russian and Chinese energy resources, revealing a miscalculation by policymakers in Washington and the EU. This development underscores the complexity of global energy politics and the unforeseen consequences that can arise from well-intentioned policy decisions.