Japan circumventing sanctions on Russian oil

Subject : International Relations

Section: Msc

Concept :

Japan has been purchasing oil from Russia at a price above the $60 per barrel price cap imposed by the West, according to reports this week.
This has led to speculation that Japan may be breaching an agreement reached last year to cap the price of Russian oil.

Cap on Russian Oil

The G-7 countries, the EU, and Australia imposed a $60 per barrel price cap on oil purchased from Russia starting in December 2022.
The move was part of the wider economic sanctions imposed by the West to punish Russia following its invasion of Ukraine.
This was to restrict the amount of money that Russia can make by selling its oil, but without severely affecting the global oil supply.

Why is Japan breaking ranks with the West?

While many European countries have reduced their dependence on Russian energy supplies, Japan has stepped up its purchases of Russian natural gas over the past year.
Japan is the only Group of Seven nation not to supply lethal weapons to Ukraine, and Prime Minister Fumio Kishida was the last G-7 leader to visit Ukraine after Russia’s invasion.
Japan got the U.S. to agree to the exception as it needed it to ensure access to Russian energy. The concession shows Japan’s reliance on Russia for fossil fuels.
Japan has almost no fossil fuel of its own and relies on imported natural gas and coal for much of its electricity.
Russia accounts for nearly one-tenth of Japan’s natural-gas imports.
Japan’s oil import contributes very little to Russia’s overall oil production, which was about 10.7 million barrels per day in 2022, and thus does not significantly subvert the West’s efforts to restrict the Kremlin’s oil revenues.
Japan was granted an exception to the cap for oil purchased from the Sakhalin-2 project in Russia’s Far East.

Will rising oil prices threaten the West’s price cap?

OPEC and Russia decided to cut their oil output by 3.66 million barrels per day, sending oil prices soaring 6%.
Russian urals, the flagship crude oil sold by Russia, also soared above $60 per barrel, thus breaching the West’s price cap.
When the West first imposed its price cap, it had no effect on Russia’s oil output or revenues as Russian urals were trading well below $60 per barrel.
But now with urals trading above $60 per barrel, things might turn out to be different.
The West would hope that its price cap would keep Russia’s oil revenues in check despite rising oil prices.
Russia, which has seen its oil revenues drop due to subdued oil prices and the West’s ban on Russian oil, will be hoping to turn the corner by bypassing Western sanctions and selling oil above the price cap.
This will test the West’s ability to effectively implement its price cap.