The EU and the UK banned the seaborne imports of crude oil on December 5, 2022, by far the biggest step to date to cut off the fossil fuel export revenue that is funding and enabling Russia’s barbaric invasion of Ukraine. Imports of refined oil products from Russia and containing Russian crude oil are allowed until February 5, 2023.
Russia is more dependent than ever on revenue from oil, as tax income from other sources has dropped due to the impact of sanctions on the economy, and revenue from gas exports has collapsed.
The big question is how much of the European demand Russia can replace by finding other buyers, and at what price. Persuading other buyers to take more will likely require increasing the discount that Russian sellers offer from international prices.
Ukraine’s allies are aiming to push down the price further by setting a price cap that applies on all Russian oil carried on tankers owned, insured or financed by companies in the EU and G7 countries, as well as other countries joining the coalition. The level of this cap is reviewed regularly.
The important questions to track are:
- How do Russia’s export volumes develop after the bans becomes effective — does Russia manage to fully reroute crude oil exports or do they fall? What dynamics play out with oil products?
- Does Russia manage to find alternatives to European-owned and insured tankers to circumvent the price caps?
- Do EU countries and the UK increase oil products imports from third countries that import Russian crude oil, such as Turkey, United Arab Emirates, India and Malaysia?
- What happens to the prices paid for Russian oil and oil products?
This Russian oil sanctions tracker aims to answer these questions with data.
Is Russia finding new buyers: tracking outgoing oil shipments
A last-minute shopping spree for Russian oil by EU countries, led by Germany and Italy just before the crude oil price cap became effective, saw EU seaborne oil imports from Russia increase month-on-month for the first time since March 2022. Russia’s total export revenue from fossil fuels increased month-on-month for the first time since July, due to the increase in EU imports.
Russia’s crude oil exports fell after the crude oil price cap and the EU ban entered into force. The levels of shipments have climbed back to levels close to what they were before these sanctions kicked in. This illustrates the need to revise down the price cap in order for Russia not to benefit from revenues from increased shipment volumes.
Oil product imports into the EU are allowed until February 5, 2023.
Is Russia finding alternatives for European tankers?
To circumvent the price cap, Russian exporters would need to tap a lot of additional tanker capacity that is not covered by the policy. The majority of vessels carrying Russian oil and oil products are owned and/or insured in the EU and G7 countries (67% and 71% in November, respectively – and 63% and 73% in January). The low share of ownership and/or insurance of vessels outside the EU and G7 demonstrates that Russia has so far had little success in finding alternative shipping and insurance service providers. This illustrates how strong a set of tools the price cap coalition has to force down Russia’s oil revenues by lowering the price cap.
Are Russian shipments finding buyers: tracking oil-on-water
A key indicator of whether Russian fossil fuel producers are having trouble finding buyers is an increase in the amount of “product on water”, amount of fuel loaded on ships at a given moment. When orders for Russian fuels fall, the producers are initially likely to keep loading new vessels, hoping that the product gets taken up later. This is facilitated by traders who purchase cargoes at a low price and aim to sell them on to a buyer later. When this happens, we’ll see an increase in vessels that are reporting their destination as “for orders”. The increase in “for orders” departures and in product-on-water took place in November for LNG, as Europe’s gas inventories were full and prices dropped. The glut of LNG “for orders” has continued since. For crude oil, the increase in European purchases led to a drop in oil-on-water in November, while the increase for oil products was tempered. Crude oil on water has since fallen. In January, the amount of oil products on water was roughly at the same level as in November.
Is the price of Russian oil falling?
The spot price for Urals crude oil fell to $60–65 per barrel in late November 2022, its lowest level since early 2021. The price reached as high as $97 in June. Measured in rubles, the metric that matters for Russian tax revenue, the price in late November was the lowest since the depth of the COVID-19 crisis in early 2020, due to the ruble’s high exchange rate. Until January, the price has stayed beneath the price cap, but showed signs of inching closer to the price cap level of $60.
Strengthening the sanctions — way forward
The most important way to cut Russia’s export revenues further will be to drive down the oil price cap. The Russian government collects taxes on the difference between production and transportation costs of oil and the selling price, so lowering the price cap to a level that is close to the cost of production will deprive the government of the ability to fund the war from oil revenue. Our recommended level is $25-35, which would still be well above production and transportation costs, incentivising continued supply while significantly cutting Russia’s revenues.
Russia made an estimated $18 billion on crude oil exports outside the EU and the UK in October-November alone. The exports have since shown a mixed picture: crude exports to China and India have decreased, while exports to Egypt, “others” and “unknown destinations” have increased. This is why a strong price cap is needed.
The level of the cap will be reviewed every two months, giving the EU and G7 countries the ability to drive down the price over time — this should happen every time Russia commits certain war crimes such as attacks against Ukraine’s energy infrastructure.
There is a need to continuously monitor compliance with the import bans and the price cap, as well as Russia’s attempts to circumvent them. It, will be essential to toughen penalties for vessels that don’t comply with the cap, banning them from eligibility for insurance or entry into EU and G7 ports forever. This would create a strong incentive for compliance.
Continue exploring our insights in this in-depth article.
This oil sanctions tracker and the in-depth article are also available in Ukrainian.
Methodology
The data and graphs on this page are based on CREA’s Russian Energy Export Tracker, with the methodology documented here.