For sanctions advocates in the West, the steep slide in the value of the ruble this year is a clear sign that the economic penalties imposed on Russia over its invasion of Ukraine are making an impact.
They say the Group of Seven (G7) countries should strike while the iron is hot and lower their price cap on Russian crude oil exports, now at $60. The goal: Tighten the choke on the Kremlin's revenue and force President Vladimir Putin to choose between economic stability and military spending.
Russia's central bank hiked interest rates by a massive 3.5 percentage points at an emergency meeting earlier this month after the value of the ruble fell below one U.S. cent, capping a 30 percent decline since the start of the year as the war in Ukraine drags on with no end in sight.
"Russia needs emergency hikes to stabilize the Ruble. We have the power to give Putin the financial crisis he deserves. We just have to lower the G7 price cap," Robin Brooks, chief economist at the Washington-based Institute of International Finance, a financial-industry association, said in an August 15 post on social media.
Aleksandra Prokopenko, a former Russian central bank analyst, seconded that opinion, arguing that sanctions are working and that lowering the price Moscow receives for oil -- its main source of hard currency -- will put Putin's economy in a tough spot.
The Russian president's determination to push ahead with the failing invasion of Ukraine at all costs is "putting the economy on increasingly unsustainable footing," said Prokopenko, now a nonresident scholar at the Berlin-based Carnegie Russia Eurasia Center.
To push it to the brink "the West should continue to go after the Kremlin's revenue sources, including by lowering the oil price cap, introducing similar measures on other Russian exports, and closing sanctions loopholes," she wrote in a Bloomberg opinion column on August 17.
Not so fast, some oil experts say.
Wary industry analysts warn that lowering the G7 price cap would only deepen concerns over global oil supply at a time of record demand and drive the price of crude higher, hurting those very countries -- and maybe not harming Russian revenue much.
"If tomorrow the G7 comes and says the price cap is $50, you are most likely going to see a further increase in the oil price. The immediate reaction to tougher sanctions is always an increase in the oil price because of the fear of disruptions," Jorge Leon, an analyst at Oslo-based Rystad Energy, told RFE/RL.
"I think it is in the best interest of the G7 not to rock the boat," he said.
That concern is shared by many G7 leaders who are loath to see energy prices move higher as they combat the worst bout of inflation in decades, experts say. The surge in the cost of living is widely considered one of the biggest potential threats to U.S. President Joe Biden's bid for reelection next year.
The debate over the effectiveness of the price cap has been going on since before it was imposed in December 2022. Eight months later, there still is no consensus on how well it's working.
That is because the price Russia ultimately fetches for its oil is also affected by an embargo on seaborne shipments to the West and output cuts by OPEC+, which includes Russia and several other countries that are not OPEC members.
When the price cap took effect along with the embargo on seaborne crude, Russia's Urals blend was already trading below $60 a barrel and at a steep discount to Brent crude, the European benchmark.
The G7 aimed to limit Russian revenue while keeping Russian oil flowing to global markets. It rejected calls for a price cap of $30 to $40, fearing that Russia would cut exports, potentially causing economic havoc with global reach. Russia is the world's second-largest oil exporter, after Saudi Arabia.
The price-cap policy forbids Western intermediaries, such as shipping companies and insurers, from offering their services if Russian crude is sold above $60 a barrel. Western intermediaries have traditionally dominated such industries, so keeping them out boxes Russia in.
To overcome the limitations, Russia has been trying to establish parallel infrastructure, snapping up hundreds of old tankers and setting aside $9 billion for ship reinsurance. It has also resorted to disguising the price it receives by inflating shipping costs, experts say.
Last month, Russian crude cost $64.31 on average, surpassing the price cap and lifting oil export revenue to an eight-month high, according to the International Energy Agency. It is still cheaper than Brent but the discount has narrowed from as much as $35 to around $10, another indication the cap is losing its power.
Ben Cahill, an energy expert at the Washington-based Center for International and Strategic Studies, says the impact of sanctions tends to weaken over time as crafty individuals find ways around them. "The story with energy sanctions in the last 10 to 15 years is that the market gets pretty clever at evading them. And the longer they are in place, the more leakages we see, especially when the market is tight," he told RFE/RL.
U.S. Deputy Treasury Secretary Wally Adeyemo said in June, prior to the recent global oil-price spike, that the price cap was working. The money that Russia had set aside for reinsurance, he said, was money the Kremlin can't use to "invest in tanks and other weapons to fight its illegitimate war in Ukraine."
Experts at the Peterson Institute for International Economics reported in July that the price cap had had less of an impact on Russian oil export revenues than the embargo, saying that the $60 ceiling was too high to have an effect in many cases and that enforcement is lacking.
The European embargo on Russian seaborne crude forced Moscow to ship oil from ports on the Baltic and Black Seas to China and India at a significant discount.
"The EU embargo had driven down prices so much as to make the cap's level of $60/barrel irrelevant," the Peterson Institute experts said.
But lowering the cap may still not achieve much, some experts say.
"There are plenty of voices calling for a lower price cap now, saying this policy is working well and we should cut the price cap to squeeze Russia more," Cahill said. "But the lower you set the price cap, the more evasion there will be."
He says that at a $20 discount to Brent, there would be too much incentive for sanctions-busters to step in. "I think enforcement becomes really, really hard if you go below $60 a barrel, especially if global oil prices rise," he said.
Craig Kennedy, a Russian oil-industry expert and associate at Harvard University's Davis Center, says that the power of the G7 cap is "being put to the test" as Russian oil prices surpass $60 and that if sanctions enforcement measures aren't taken soon, the policy "is at risk of unraveling."
He suggests the G7 and European Union create a "whitelist" of traders and brokers authorized to provide pricing information in order to cut down on Russian evasion. Under his proposal, G7-owned or -insured tankers would need to receive price attestation from a whitelisted trader in order to transport Russian oil.
He also suggests that the EU and the G7 -- the United States, Canada, Japan, Britain, France, Germany, and Italy -- prohibit their companies from selling tankers to Russian or undisclosed buyers.
Where Russian oil prices go from here will also depend in large part on Saudi Arabia and on Asian buyers, says Chris Weafer, an energy expert and founder of Macro-Advisory, a consulting firm focusing on the countries of the former Soviet Union.
"The only way the current price cap, or a lower one, would work is if Saudi Arabia were to ramp up production or Asian buyers refused to pay more than the cap," he told RFE/RL.
It's unclear whether either of those will happen. With the exception of Japan, Asian countries are not beholden to the G7 cap.
Saudi Arabia cut production by 1 million barrels a day in July to prop up prices, helping lift Russian crude prices above the cap, and later extended the cuts through September. The Biden administration had been pressing Saudi Arabia to keep production high to help cool global inflation.
"So long as buyers in China, India, and others in Asia are getting oil with a discount, they are unwilling to kill the Golden Goose -- relatively cheaper Russian oil -- by demanding an even bigger discount to bring the price below the cap," Weafer said.
