Refiners in India are buying cargoes of Russian oil at the widest premium above a G-7 imposed cap since the curb was introduced, highlighting the market’s importance to Moscow and a gap that may intensify scrutiny of the controversial mechanism.

Crude processors in the key importer paid an average of $86 a barrel for Russian shipments in August, according to the Ministry of Commerce and Industry. That’s the biggest spread in dollar terms since the $60-a-barrel limit came into force after Moscow’s invasion of Ukraine in the first quarter of 2022. 

Oil rallied in the third quarter as OPEC+ leaders Russia and Saudi Arabia choked off some supply to tighten the market. That rally lifted benchmark prices even further above the price set by the cap — which is designed by the Group of Seven to meet the twin needs of seeking to limit the Kremlin’s crude-based income, while at the same time keeping Russian flows on the global market.

The cap is constructed to bar access to critical western financing and insurance services for crude cargoes if shipments are valued above $60. Beyond that level, they are permitted, as long as buyers and sellers make alternative arrangements. India, a vast oil buyer, has been adept at doing so.

US Treasury Secretary Janet Yellen recently warned that the US is preparing to crack down on evasion of the G-7 cap on Russian oil, as recent market prices signal the mechanism may no longer be working as hoped. The US is looking at enforcement very carefully, Yellen told the Wall Street Journal.

One of the architects of the plan, meanwhile, has proposed steps to fix the program. Ben Harris, a former senior official at the US Treasury who helped design the cap, said the G-7 and European Union need to both raise the price level, and crack down on Russia’s evasion.

Since Indian refiners buy crude on a delivered basis, the responsibility of attesting it was bought below the cap falls on suppliers, according to Vandana Hari, founder of Vanda Insights. While some Indian banks did withdraw from transactions as prices broke through the cap, others stepped in, with some payments in UAE dirhams, she added.