The Price Cap Coalition, which consists of the G7 nations, the European Union, and Australia, has imposed caps on the price of Russian oil products, effective from February 5th, 2023. The coalition aims to reduce the revenues that are fueling Russia's illegal war in Ukraine.
High-value Russian exports such as diesel and gasoline will be capped at $100 while lower-value products like fuel oil will be capped at $45. The UK and its allies will only facilitate the maritime transport of refined oil products from Russia if they are traded at or below the cap levels.
These price caps follow the $60 cap on Russian crude oil that took effect in December 2022. The crude oil cap has been successful in curtailing Russia's ability to use oil revenue to finance its war in Ukraine, while minimizing disruption to global supply. Russia's crude oil is now selling around $40 lower than global benchmarks.
The UK government has already introduced an import ban on Russian oil products, so the price caps will not be used in the UK. Chancellor Jeremy Hunt praised the UK's efforts in coordination with its allies to undermine the funding streams that support Russia's war machine.
The G7 finance ministers agreed to cap the price of Russian oil products in September 2022 to reduce Russia's ability to finance its war through inflated global oil prices while ensuring that other countries can continue to secure affordable oil. The UK has been instrumental in leading the design of the caps in collaboration with the US and industry partners.
The two-cap approach has been implemented to cover two categories of refined oil products. 'Premium-to-crude' products are those of high export value, often used for transportation and electricity generation, while 'discount-to-crude' pertains to products of lower value. The government has laid domestic legislation and published guidance to help the industry comply with the new rules.
The price caps were legislated in the "The Russia (Sanctions) (EU Exit) (Amendment) (No. 16) Regulations 2022," and a General Licence INT/2022/2469656 was issued in December 2022 and updated in February 2023 to provide an exception to the import ban. The General Licence and OFSI Guidance published in February provide a list of premium-to-crude products and further details to help the industry comply with the new rules.
The price caps on Russian oil products are a significant step in curtailing Russia's ability to finance its illegal war in Ukraine. The UK and its coalition partners are committed to undermining the funding streams that support Russia's war machine, while ensuring that other countries can continue to secure affordable oil. The government has laid domestic legislation and published guidance to help the industry comply with the new rules.
