In early September 2022, G7 leaders confirmed their intention to impose another measure designed to punish the Kremlin without causing a major shock to the fragile global economy. Under the new proposal, the EU would embargo imports of Russian oil, but western companies could continue to support the export of Russian oil to other parts of the world, if it was sold at a discount to market prices.¹⁾

Troost was sceptical, as were other veteran traders. The fixed-price caps under discussion failed to account for variations in price between different Russian crude blends, or in how those prices were set when cargoes were traded. Not only would it be difficult to enforce, it would probably push the Russian oil trade “underground”, Troost wrote in a series of company memos he shared with G.²⁾

Those that continue to provide insurance need to obtain ‘attestations’ from parties further down the contractual chain – the shipping company and oil firm – to state that the oil has been sold below the cap.

But the process of obtaining attestations is somewhat flawed. It is really quite easy to manufacture an attestation, which is just a piece of paper, and there is no way for shipowners and insurers to properly check if they are true or not – a problem that has allowed oil sold above the price cap to be shipped to its buyer.

Furthermore, attestations can be made for the oil being sold under the price cap, with companies then ensuring buyers pay additional sums over the reported crude costs for ‘additional fees’ like insurance and freight costs.

At the end of December, the G7 released plans to “tighten” the price cap restrictions by requiring shipping providers to receive written attestations from their buyers each time Russian oil is loaded.

Additionally, besides causing greater government revenues to be spent subsidizing fuels, price caps cause countries to periodically suffer fuel shortages. ¹⁾

Authorities in the US have issued warnings to the market that those looking to evade the cap might provide fraudulent documentation, for instance by inflating shipping and other costs to mask the fact oil is priced above US$60.³⁾

“The price cap relies on the honesty of traders, shippers, and insurers to self-report the price paid for Russian oil,” Rosner says. “These companies have little incentive or ability to act as administrators of sanctions and cannot be trusted to mark their own homework.”⁴⁾

The cap requires that any western company involved in transporting Russian oil receives a so-called attestation, a document vouching that the cargo cost $60-a barrel or less. If it doesn’t, they’re not allowed to provide their services. The fact that Argus’s prices are so far above that level creates a dissonance.

When contacted by GTR, a spokesperson for the West of England P&I Club says that as “tier three” entities under the sanctions regime, insurers and shipowners have “no access whatsoever to information relating to the purchase price of any particular cargo”.⁵⁾

“The price cap mechanism allows tier three actors to rely on attestations that the cargo being carried was purchased at below cap prices,” they say.⁶⁾

“Under the oil price scheme a shipowner must conduct customary due diligence and provide a valid attestation for there to be cover for the carriage of Russian oil,” he says.⁷⁾

“The [scheme] seeks to achieve a mechanism for the lawful carriage of Russian oil whilst respecting the fact that shipowners and their insurers and banks have no direct access to the price paid for the cargo.”⁸⁾

“The current oil price cap policy therefore relies on attestation documents provided by oil traders to glean information about the price paid for Russian oil,” it says.⁹⁾

But it says insurers “must undertake the required due diligence to ensure that the seaborne oil they are providing maritime insurance for has been paid below the oil price cap”.¹⁰⁾