G7 leaders agree to step up measures to counter evasion of Russian oil price caps

G7 leaders agreed May 19 to step up measures to counter the evasion of price caps on Russian oil exports and the ability of Russian banks to sidestep financial sanctions through foreign subsidiaries.

In a joint statement on Ukraine, G7 leaders meeting in Hiroshima, Japan, renewed their support for Ukraine for "as long as it takes" and agreed to ramp up pressure on Russia through additional sanctions measures.

"We remain committed to upholding the price caps on Russian oil and petroleum products and we will enhance our efforts to counter evasion of these caps while avoiding spillover effects and maintaining global energy supply," the G7 leaders said in a statement following a meeting as part the group's May 19-21 summit.

The statement comes a day after the US Treasury claimed the success of oil price caps on seaborne exports of Russian crude and oil products for hitting Moscow's ability to fund its war in Ukraine. The Treasury also said it plans to continue working with its coalition partners to monitor and counter sanction evasion measures.

On May 16, the EU's high representative for foreign policy, Josep Borrell, said the EU should crack down on Indian fuel imports made from processed Russian crude as part of moves to toughen sanctions on Moscow and curb circumvention. The EU currently only prohibits fuel imports that originate in Russia or are exported from Russia, but pressure on policymakers has been growing to stem soaring volumes of oil products made from refined Russian crude and exported to the EU.

Earlier this month, EU president Ursula von der Leyen also said a sanctions "crackdown" would be focused on EU goods entering Russia via third countries, adding that the EU was planning to ban "shadow" entities from Russia and third countries that are circumventing sanctions.

According to unconfirmed reports, however, the European Commission may also be looking to ban ships engaging in deceptive practices, including illicit ship-to-ship transfer operations and "dark" AIS voyages as part of a sanctions crackdown.

A new analysis from S&P Global Market Intelligence released that more than 860 Russia-linked companies were established in the shipping industry in 2022, suggesting a complex and opaque ownership structure for vessels serving the country's seaborne trades.

Financial curbs

In response to Russia's sanctions evasions, the G7 leaders also agreed to prevent third-country branches of Russian banks used to avoid the sanctions.

"We are taking steps to further reduce avenues for Russia to circumvent our financial measures including by preventing third-country branches of Russian banks from being used to avoid sanctions," the G7 leaders said in the joint statement.

"We will continue to take necessary actions against Russia's financial sector while coordinating to preserve financial channels for essential transactions."

Sanctioning countries may also target foreign banks facilitating Russia circumventing sanctions.

Earlier May 19, the UK sanctioned five Russian financial institutions, including Dom RF, Metallurgical Investment Bank, Tinkoff, Rosbank and Sistema.

Earlier this year the US Treasury's Under Secretary for Terrorism and Financial Intelligence Brian Nelson told the Banks Association of Turkey that by engaging with sanctioned Russian entities, Turkish businesses and banks could put themselves at risk of sanctions and a potential loss of access to G7 markets and correspondent relationships.

Russian metals

The G7 pledged to continue efforts to reduce Russia's revenue from exports of metals and diamonds.

The UK announced May 18 a ban on Russian diamonds, copper, aluminum and nickel. It said Russian diamond exports were worth $4 billion in 2021.

While the US has not banned all Russian metal imports as it did with most petroleum products, it imposed 200% duties on Russian aluminum and all products containing Russian aluminum. Still, Russian titanium and nickel have avoided US restrictions, as Russia is a crucial supplier and imposing tariffs could create problems for multiple markets.

Between February and April 2022, the value of Russian exports of cobalt, copper, diamonds, iron ore, gold and other selected metals and mining products dropped 35.5%, according to S&P Global Market Intelligence data. Since that steep decline, the cumulative value of those exported goods held relatively steady a year out from the invasion.