By Andrea Shalal

NEW YORK (Reuters) – U.S. Deputy Secretary Wally Adeyemo on Thursday said the Group of Seven-led coalition that imposed a price cap on Russian oil last December was shifting its focus from reducing Russian revenues to raising Moscow’s cost of shipping its oil.

Adeyemo told the Reuters NEXT conference in New York that Russia’s investment in a shadow fleet of tankers to carry its oil and the accompanying insurance was cutting into Moscow’s profits and reducing its ability to fund its war in Ukraine.

“We want to make sure that Russia has as little income as possible that they can use to fund their illegitimate war in Ukraine,” he said, citing outside estimates that the price cap had added up to $35 per barrel to Russia’s costs in addition to reducing its revenues by 40% to 50%.

“From my standpoint, them buying these tankers and spending money on tankers was far better than spending money on tanks,” he said. “So now Russia owns a series of inadequate tankers that are on the ocean, trying to move their oil with their insurance, and our goal is going from just being focused on their revenue – which was the $60 price cap – to being focused on their costs.”

Reuters reported last month that Russian crude oil producers are enjoying the cheapest costs to ship to refiners in China and India in almost a year thanks to a growing number of vessels plying the routes.

The arrival of new shippers working outside the purview of Western governments allows Russian firms to earn more than the $60 per barrel cap that the U.S. and its allies had aimed to impose on Russia through sanctions. It also means that enforcing the price cap will have limited impact on Russian revenues.

G7 countries and Australia imposed sanctions in December 2022 that prohibit shippers or insurers domiciled in member countries from offering services to facilitate Russian oil exports when the price is above $60 a barrel. The sanctions do not apply to shipping companies or insurers from other countries, regardless of the price.

Adeyemo said the price cap had driven Russia’s costs up significantly because it now had to ship oil over longer distances, and had been forced to build up its own ecosystem that did not benefit from economies of scale enjoyed by Western countries.

“What we’re focused on now is making sure that we enforce the price cap as it exists, but also that we take additional steps to increase costs to Russia in order to make sure that they have less income to fund their illegitimate war,” he said.

He gave no further details on what steps could be taken to increase Russia’s costs.

(Reporting by Andrea Shalal, editing by Deepa Babington)

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