Putin's effort to challenge the global economic system encounters resistance.

On December 5, a $60 per barrel price restriction on Russian seaborne oil went into force, signaling the beginning of a new phase in the economic battle between Russia and the West. The cap was agreed upon by the European Union, the G7, and Australia just a few days prior.

The price ceiling may be one of the most significant retorts to Russia's weaponisation of its energy reserves since the start of its full-scale invasion of Ukraine, but what it comprises and aims to accomplish are largely misunderstood.

Contrary to what many appear to believe, the price cap is not intended to terminate Russian oil exports. In fact, it seeks to ensure that they continue to flow despite ever-tightening laws and penalties, albeit not to Western markets. Since February, China, India, and many other third parties have been able to purchase enormous volumes of Russian crude at steep discounts. They are still able to do so. The objective of the cap is not to restrict these purchases, but rather to limit Russia's revenues, which are primarily used to fund its military effort, by guaranteeing that the current discounts remain permanent.

The international coalition opposing Russia's invasion of Ukraine found it difficult to reach a consensus on the action; its final provisions were only accepted by all parties on December 2. The difficulty was determining where to place the cap. The countries ultimately opted to set the price at $60, which was more than the price at which most Russian oil traded on the eve of the limitation. Poland, probably the most supportive European nation of Ukraine during Russia's invasion, was the last holdout. Warsaw concurred with Ukrainian President Volodymyr Zelenskyy that establishing the cap at that level would result in Russia still making a profit on the barrels it sells.

In the end, however, all sides agreed on a cap of $60 per barrel since, at that price, Russia's earnings can be severely curtailed without triggering a huge disturbance to the global oil market that could send prices soaring for everyone. In fact, a lower price ceiling would have likely compelled Russia to take dramatic action, such as ceasing all exports, and harmed all oil-importing nations, including Russia.

The Kremlin has been exporting its oil at considerable discounts since February, despite its protests that such price limitations constitute an unacceptable breach of its sovereignty. Consequently, a $60 cap is merely an effort to make the current arrangement permanent.