When Western leaders announced on Dec. 2 that they had agreed on a $60 price cap on Russian oil exports, they trumpeted it as a bold multinational achievement in energy diplomacy. But anyone who thinks this will be a significant hit to Russian oil revenues—and the Kremlin’s ability to finance its genocidal war to subjugate Ukraine—is likely to be disappointed. The price cap agreed on by the European Union and quickly endorsed by the United States, G-7, and Australia is not bold enough to significantly affect Russian revenues or impede the conduct of the war.
After all, Russian oil has sold at prices in the $60 range for much of the last several years. Moreover, since Russia’s February invasion of Ukraine, global energy traders have already limited their offtake of Russian crude to some extent. When countries such as India and China snapped up the surplus, they negotiated steep discounts. But the discount for Urals crude, the main Russian benchmark—nearly $40 per barrel compared with Brent oil in the early months of the war—has slowly dropped into the low $20 per barrel range, allowing Moscow to continue cashing in.
Russian President Vladimir Putin’s recent escalation of the war with missile strikes against Ukrainian energy infrastructure, water supplies, and other civilian targets should have been met with an equally aggressive price cap. The $60 cap certainly won’t keep Putin up at night. The markets don’t seem to be worried, either: On Dec. 8, three days after the cap went into effect, the price of Brent oil actually fell to $76.15, the lowest level of the year.
