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The Fixed Game of Price Caps on Russian Oil

The war in Ukraine serves the purposes of the climate-conscious elites in more ways than one.

PCK refinery in Schwedt
(Photo by Christophe Gateau/picture alliance via Getty Images)

The $60 per barrel price cap for seaborne shipments of Russian crude oil set on December 5, 2022, was another recent step taken by the American-led Western alliance to hinder Moscow’s energy exports, the most vital sector of its economy. G7 countries plus Australia moved to ban the use of Western-supplied maritime insurance and other financial services for Russian ships transporting oil priced above the $60 cap.

U.S. Treasury Secretary Janet Yellen has touted the success of this policy at ensuring Moscow receives less money for shipments of its all-important oil exports. The subsequent result has been an almost 50 percent cut in the price of Russian Urals oil blend to about $37.80 per barrel (less than half the international benchmark, Brent crude). Even Russia’s own Finance Ministry has reported a near 20 percent price drop to $46.82 per barrel, making it seem evident that the G7 moves are having the desired effect.


Western policymakers have effectively employed the means available to them in order to accomplish their strategic objectives: strangling the Russian nation and inflicting as much economic pain on it as possible. It’s hard to say if it will be enough to secure the ultimate political end of toppling Vladimir Putin. But in the headlong rush to destabilize Moscow, they are also aiding in China’s geopolitical rise. A rising China is not such an unfortunate consequence, as we will show, because of China’s key role in the industries supporting Western elites’ hobbyhorses.

Actions aimed at harming Moscow must also be considered in light of their contribution to furthering the left-wing ideological ends that animate our ruling class. For Western elites, ostracizing Russia has the added benefit of accelerating efforts to convert entire economies to green energy in the upcoming decades. This is done in two ways: on the one hand by increasing the demand for renewable products by ending the flows of oil and gas, and on the other by making supply of renewable energy products more plentiful and, at least temporarily, cheaper, ironically due in part to the spigot of cheap input energy staying open for Beijing.

Price caps on a foreign country’s exports are only effective as long as you can get others to go along with them. This is not like a disgruntled child taking their ball and going home. Russia has the ball. The U.S.-led alliance is simply stomping its feet and telling everyone else to stop playing. 

China, for one, is certainly not done with the game. According to a Business Insider article citing a report by the analytics firm Kpler, it is likely that purchases of Russian crude by China (as well as India) continue to register about $60 per barrel in revenue for Moscow. The Kremlin does this by incorporating additional charges into its oil exports, such as shipping, insurance, and various other financial services; these are the exact areas targeted by the December 5 price caps. Kpler is only one analytics firm and there are plenty of competing reports, but it makes intuitive sense that the levers through which the West exerts pressure can be circumvented by those who don’t buy into the ideological program.

U.S. Treasury officials have openly stated that the intention of the caps is to cut Russia’s revenues on oil bought by big consumers, particularly India and China. But we know that Russia is not going to cut oil and gas exports. This means that the policy must be implemented with the knowledge that it will directly benefit Beijing. The decision to lower the price of Russian crude purposefully is therefore indicative of Western strategic priorities: Harming Russia is more important to decision-makers than containing China.


According to some Western sources, the actions against the Russian oil industry have resulted in Moscow losing about $170 million a day in energy revenue. Whether or not this is accurate, the Kremlin does seem to be taking a hit. The Economist reports that the Russian economy is likely to have shrunk by 3–4 percent in 2022, although this is much less than was previously predicted (many Western estimates were closer to 10% at the onset of sanctions). Even Russian President Vladimir Putin—hardly an unbiased source—stated that the country’s economy most probably contracted by about 2.5 percent. Additionally, Russia’s account surplus experienced a significant drop to $31.4 billion in the last quarter of 2022 (from a record $78.5 billion in Q2 of that year). 

Europe continues to close its doors to all imports of Russian oil and gas, and is doing everything in its power to lower its price on the market. Meanwhile, Beijing, obviously not dissuaded by Western finger wagging, continues to increase the amount of energy it imports from Moscow.

Rising out of its economic slump post-Covid, China appears likely to undergo a manufacturing boom, and those manufactured products will proceed to be sold in Europe and the United States. These might very well be sold at a lower cost given reduced manufacturing expenses due to lowered input prices for energy. A simultaneous increase in demand for given products, however, due to Western policy decisions, may lead to price increases and thus offset the cheaper production. In that case, China would see its profit margins widen, at least for a period.

Consider the primary manufacturing products that will dominate China’s exports in the upcoming years:

In 2021, China exported 44,000 wind turbines. From January to October 2022, China exported 66,400 wind turbines, up 89.06 percent year-on-year. The United States was the number one export destination.

China’s export of solar photovoltaic products increased by about 60 percent to $28.4 billion last year. It produces 97 percent of the world’s wafers, the ultra-thin silicon squares that are assembled into solar panels. Some have pointed to the Biden administration’s Inflation Reduction Act as a means to change this. The act provides massive subsidies for the domestic production of these types of panels. There is only one issue: China accounts for two-thirds of the world’s silicon production.

Then there is the electric vehicle (EV) issue. The Inflation Reduction Act has devoted massive amounts of U.S. wealth to the domestic production of EVs. But nearly 60 percent of the world’s rare-earth metals (essential for the latter process) are produced by Chinese interests.

The considerations that dictate policy in the Kremlin or the CCP Politburo are not the same as in the halls of D.C. China will not forgo taking advantage of reliable and plentiful energy from Russia because of the West’s vendetta against Vladimir Putin.

Yes, Europe abiding by the price caps has had a negative effect on Moscow’s revenue flows. It is (or was) a major importer of Russian oil. The E.U. has also largely been able to divest itself of Russian natural gas since the beginning of the war last February. Despite the rise in prices, a relatively mild winter partially insulated countries on the continent from the economic pain that would have otherwise resulted.

In December, however, the E.U. decided to install a market correction mechanism that will restrict the energy futures market should prices rise too high, discouraging a speculative price spiral. The Europeans know that they aren’t out of the woods yet, and a sudden turn in the weather could prove troublesome. In an era in which fiat currency means increasingly less, the potential for future economic pain resulting from market distortions is essentially a non-factor in policy making. 

Two additional price caps are set to go into action on February 5. This suggests that, despite all the numbers touting about how much sanctions are bleeding the Russian economy, there apparently exists the calculation that more needs to be done. Additional steps to hem in Moscow’s revenue flows signify that its economy is not tottering as much as expected. The new caps will target secondary products, including those that trade at a premium to crude (like diesel and gas oil) as well as those that trade at a discount to crude (such as fuel oil). Once again, it is easy to see how China will be the benefactor of this policy move. 

The Washington establishment has no reason to stop prolonging the Russo–Ukraine War—at least in the short term. Not only is it isolating Russia, but its ideologically driven green crusade will make progress in the process. Unfortunately, this is a myopic worldview that doesn’t appear to account for the fact that our policy also directly benefits China, and therefore serves as an accelerant to the rise of communist Beijing as a preeminent power in the emerging geopolitical order.