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 were allowed until February 5, 2023.
Ukraine’s allies also instituted a price cap on Russian crude oil and oil products to diminish Russia’s revenue and impede its capacity to fund a comprehensive invasion of Ukraine. Despite initial promises to review the price cap, this reassessment ultimately proved unsuccessful.
Determining how Russian export revenues would sustain after the implementation of sanctions was based on how much of the European demand Russia could replace by finding other buyers, and at what price. In the early months of the sanctions, persuading other buyers to increase the purchases of Russian fossil fuels such as oil required increasing the discount that Russian sellers offer from international prices. Throughout 2023, the discount of Russian oil compared to global oil prices shrunk as they were able to maintain similar volumes by selling higher quantities to new buyers.
The important questions to track are:
- How and where have Russia’s exports moved since the sanctions?
- Does Russia manage to find alternatives to European-owned and insured tankers to circumvent the price caps?
- What quantity of Russian oil products are filtering into the EU via third countries? Which countries are increasing their imports of Russian crude to refine and export to the EU?
- What happens to the prices paid for Russian fossil fuels? What revenues are Russia earning from their export of fossil fuels?
- How successful has the monitoring and enforcement of sanctions been and what more could policy makers do to improve their impact?
This Russian oil sanctions tracker answers 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 revenue from seaborne fossil fuel exports to India and China rose heavily immediately after the EU’s sanctions. India is the highest importer of seaborne Russian crude oil and oil products since the sanctions (as of October 2023).
Russia’s seaborne crude oil export revenues have risen far above the levels they were before sanctions kicked in, displaying a clear reason to reduce the price cap and improve the enforcement of the policy. A reduced price cap will be deflationary, forcing Russia to export more oil to compensate for their losses in order to maintain stable revenues that it requires to fuel its staggering Government spending.
Is Russia finding alternatives for G7 & European tankers?
Russia remains hugely reliant on EU/G7 owned or insured vessels to transport its oil and products across the world. Since the implementation of sanctions, “shadow” tankers voyages transporting Russian oil have increased by 82%. In October alone, 62% of Russian crude oil was transported by “shadow” tankers, while ships owned or insured in countries implementing the price cap transported the rest. When Russian oil is transported on “shadow” tankers that are not owned or insured in sanction imposing countries, there is no limit on the price that the oil has to be sold at. Therefore, as Russia increases the quantities of oil that it can transport on “shadow” tankers that are immune to sanctions, as we are seeing, the oil price cap policy becomes less effective.
These “shadow” tankers transported 38% of all Russian oil exports (47% of crude and 27% of oil products) since the embargo and price cap was imposed on 5 December 2022 until 5 November 2023.
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, if it is monitored and enforced properly.
Russia’s reliance on EU/G7 owned or insured vessels provides the coalition with adequate leverage to lower the price cap, implement better monitoring and enforcement which could considerably lower Russia’s oil export revenues. Sanction imposing countries must act fast however, to prevent the growth that we are seeing of Russia’s access to “shadow” tankers, for example, by banning the sale of Western owned tankers to buyers that are registered in countries outside of the Price Cap Coalition.
What is the price of Russian oil?
The sanctions initially forced Russia to increase the discount on the price of its oil sold to attract new buyers and replace sales that previously went to Price Cap Coalition countries. The resultant losses were significant, with Russian oil export revenues falling by 14% (EUR 34 bn) in the 12 months after the sanctions were implemented — 32 bn in lost revenue, and a small reduction in export volumes accounting for EUR 2 bn. The losses peaked at EUR 180 mn per day in the first quarter of 2023, before shrinking to EUR 50-90 mn per day in the second and third quarters of the year.
One year since the sanctions were implemented, Russia revenues from seaborne crude have dropped 23% (EUR 20.3 bn). The sanctions meant that imports of seaborne Russian crude to the Price Cap Coalition decreased by 94% (EUR 33 bn). At the same time, non-price cap countries increased their imports of seaborne Russian crude by 24% (EUR 12.7 bn).
As a result of the embargo on Russian oil, the volume of Russia’s seaborne crude exports to Price Cap Coalition countries dropped by 91% (59.5 mn tonnes) in the 12 months since the sanctions were implemented. While Russia made up the deficit in volume terms — exports to non price-cap coalition countries rose 67% (65 million tonnes) — they were forced to sell their oil at sharper discounts to encourage new buyers. The drop in the price of seaborne exported Russian oil ensured that their losses in revenue were never fully covered.
The imposition of the $60 per barrel price cap saw the price for Urals crude oil drop to its lowest level in January 2023 ($45 per barrel). Since July 2023, the price of Urals has rebounded, rising to a high of $84 per barrel in September 2023. The price of Urals crude oil has stayed above the oil price cap (as of November 2023) since. Despite the fact that oil has stayed above the price cap, tankers owned or insured in Price Cap Coalition countries continue to transport Russian oil provides strong evidence of significant violations of the policy that must be penalised. Tanker owners or insurers must be attaining fraudulent attestation documents that falsely report the price paid for the oil was below the cap level.
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 costs (which we estimate as $15 per barrel on average), incentivising continued supply while significantly cutting Russia’s revenues.
Since the implementation of sanctions to the end of November, strict adherence to the current price cap would have resulted in a 12% reduction in Russia’s revenues, totalling EUR 16.71 billion. A price cap of USD 30 per barrel would have slashed Russia’s revenues by 40% (EUR 56 billion) by the end of November.
Loopholes in sanctions have also enabled countries outside the Price Cap Coalition to import Russian crude and export oil products to the EU. The same loopholes have also been exploited by countries within the EU to import Russian crude and send back revenue to the Kremlin war chest. The EU must end derogations provided to countries such as Bulgaria that have enabled Russia to earn over EUR 1.1 bn in tax revenues from their sale of crude oil to the Lukoil owned refinery in the first 10 months of 2023.
Russia made an estimated EUR 36 bn from fossil fuel exports outside the Price Cap Coalition in October-November 2023 alone. Exports to China and India have accounted for 59% (EUR 21.2 bn) of that in the 2 month period alone.
These revenue figures show a clear need to strengthen compliance with import bans, implement harsher penalties and improve enforcement of the price cap, as well as block Russia’s attempts to circumvent the legislative loopholes in the sanctions. 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.