Shipping and insurance companies likely face an uptick in the use of fraudulent documents when handling Russian crude under the G7 and EU price cap regime, researchers warn. 

G7 and EU companies are permitted to provide shipping, insurance and financial services to support trade in Russian Urals crude as long as the price remains below US$60 per barrel. Since mid-July, market prices have risen well above that level. 

By early August, other Russian oil and gas products had also started trading above their respective price caps, says a report published in September by the Kyiv School of Economics (KSE). A ban on fuel exports introduced by the Kremlin last week has squeezed the market further, prompting a jump in diesel prices. 

These dynamics are likely to increase Russian attempts to trade oil above the price cap, KSE says – a practice authorities warn relies on false documentation and other deceptive practices. 

“Unfortunately, it appears that Russia has had some success using G7/EU tankers and other service providers in selling oil above the $60/barrel threshold,” KSE says. 

“In such cases, Russian sellers and their traders likely provide attestations to shipping and insurance companies that do not reflect the actual price.” 

So far, this activity has been highlighted mainly at the Pacific Ocean port of Kozmino, where Eastern Siberia-Pacific Ocean (ESPO) crude prices have generally exceeded US$60.  

But Urals crude is exported in “much larger volumes” than ESPO, and from Black Sea and Baltic Sea ports, KSE notes. 

That means Russia’s shadow fleet of tankers, which allow the country to transport oil without relying on western service providers, is not large enough to sell Urals crude at true market prices. 

“Russia does not have enough shadow tanker capacity to transport this much crude and oil product in circumvention of the price cap regime,” KSE says. 

“Consequently, Russia is likely to try expanding the use of attestation fraud. If unchecked, this could enable Russia to secure the additional shipping capacity it needs from the mainstream, price-cap-compliant fleet, while still receiving full market prices – above the cap – for those cargoes.” 

The Centre for Research on Energy and Clean Air (CREA), a Finnish research organisation, says around half of Russian crude oil exports in August used tankers subject to the price cap, with the other half using shadow vessels. 

The warnings follow a July paper from KSE, produced jointly with the Peterson Institute for International Economics and German Council on Foreign Relations, that found G7 and EU companies had “significant” involvement in trades that breached the price cap. 

The paper said that between January and April this year, 77 million barrels of Russian crude were shipped aboard vessels subject to the cap. 

Of those, at least 24 million were priced above US$60, it found, while price information was unavailable for a further 23 million. 

“These violations are likely the result of straightforward falsification of the records oil buyers are required to provide to G7/EU shipping and insurance companies,” it said. 

KSE says it is now pushing a package of enforcement measures to ensure compliance with the price cap, while also limiting Russia’s use of the shadow fleet. 

It says governments should establish a “whitelist… of well-established commodity trading groups based in G7/EU countries, and therefore subject to legal action for violating sanctions and providing false information”. 

“Failure to obtain price attestations from a whitelisted trader would trigger legal action against EU/G7 shipowners and invalidate International Group P&I insurance coverage,” it says. 

Documentation requirements should also be strengthened, with increased penalties for violations, and transactions should be audited to ensure prices are being accurately reported, KSE suggests. 

There are also growing calls among researchers to lower the price cap. 

KSE estimates that dropping the threshold to US$50 per barrel would drive Russian oil revenues down from US$175bn to US$114bn this year alone. 

Finland’s CREA adds the G7 and EU coalition should show “how strong a set of tools [it] has to force down Russia’s oil export revenues by lowering the price cap”.