High shipping costs have created a $1 billion loophole for Russia to evade oil price cap, report says

• Russia could have made $1.2 billion through a loophole in the oil price cap mechanism, per an FT report.
• The extra revenue came in the form of higher shipping costs on its crude sent to India.

Russia could have made over a billion dollars by hiking its oil shipping costs, taking an advantage of a loophole in the western oil price cap, according to a Financial Times report this week.

Russian oil producers have been selling crude to India below the $60 price cap, but have inflated shipping costs in a possible attempt to evade price cap rules, according to an FT analysis published Monday.

The inflated fees on oil shipping to India alone could have drawn an extra $1.2 billion into the Kremlin's coffers during the three-month period ending in July, the report said.

Observers have criticized the price cap mechanism for its ineffectiveness at curbing Moscow's energy revenue. Russia pulled in its highest oil revenue in eight months during the month of July, according to data from the International Energy Agency, selling its crude for the average price of $64.41 a barrel – above the $60 price cap set by G7 nations.

Still, Moscow's energy revenue has fallen dramatically since western nations banned purchases of Russian oil at the end of 2022, which has made it hard for the nation to find alternative fuel customers. Russia made just 3.38 trillion roubles or $37.4 billion in the first half of the year from oil and gas sales, according to the nation's finance ministry, a plunge of 47% compared to the first-half of 2022.

Lower energy revenue is one of the main headwinds bearing down on Russia's economy. The nation's current account surplus plunged 85% from the start of the year. Meanwhile, the nation's budget deficit expanded to 2.82 trillion rubles in July, equal to about $29.3 billion.