The Urals oil price -- the price Russia receives for its western crude exports -- continues to rise, reaching $69.22 / barrel on Friday. This is the highest since November and well above the $60 Price Cap.
The Urals discount -- the difference between the Urals and Brent oil prices -- continues to erode. At week end, the discount stood at $16.67 / barrel, narrowing by $3 / barrel compared to a month ago. On a weekly basis, the current discount is the smallest since the start of the war.
Both the Urals price and the Urals discount signal that the Price Cap is dead. This is all the more so as Saudi oil production cuts will likely hold Brent at elevated levels, implying that Urals will also remain above the Cap limit. Indeed, strength in Brent suggests that Urals will break through the $70 threshold this coming week. The political optics will be poor.
Governments inevitably attempt to counter the evasion of prohibitions, including on the sale of Russian oil above the Cap, with one of two counterproductive policies. The first of these is denial or complacency, which was this week's primary menu offering. Reuters reports that Acting Assistant Secretary for Economic Policy Eric Van Nostrand, at a London conference, hailed the Price Cap as a successful part of the multilateral sanctions regime imposed on Russia over its invasion of Ukraine. Clearly, Urals at nearly $70 / barrel cannot be considered even remotely a policy success.
Governments also turn to enhanced enforcement, and Van Nostrand duly noted that Washington and its partners were working to thwart any evasion. This is proving progressively more challenging as Russia's shadow fleet of crude oil tankers expands.
The standard responses to prohibitions evasion almost inevitably prove failures. They will this time as well.
No one will care much about the issue in the dog days of summer, but come Labor Day, a mortally wounded Price Cap will become a political liability for the Biden administration. The topic will be back on the political agenda, as I noted last week. We may see a 12th sanctions package on Russia to remedy the shortcomings of the first eleven.