European countries are trying to find alternative sources of oil and gas after Russia’s full-scale invasion of Ukraine in February 2021.
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Russia’s revenues from fossil fuel exports collapsed in December, according to a new report, hampering President Vladimir Putin’s ability to finance the war in Ukraine.
The findings, Ukrainian officials and campaigners say, illustrate the effectiveness of targeting Russian oil revenues and highlight the urgent need for Western policymakers to to increase financial pressure on Moscow to help Kyiv win.
Published on Wednesday by the Center for Research on Energy and Clean Air, an independent Finnish think tank, the report found the first month of the European Union’s ban on sea imports of Russian crude and the cap on the price of G-7 spent in Moscow an estimated 160 million. euros ($171.8 million) per day.
The CREA report says that Western measures are largely responsible for the 17% drop in Russia’s income from fossil fuel exports in the last month of 2022. This means that Russia — one of the main the world’s oil producer and exporter — has seen revenues from fossil fuel exports plummet. at their lowest level since Putin launched his all-out invasion of Ukraine in late February.
“The EU oil embargo and the oil price cap have finally started and the impact is as significant as expected,” Lauri Myllyvirta, lead analyst at CREA, said in a statement.
“This shows that we have the tools to help Ukraine prevail against Russian aggression. It is important to lower the price cap to a level that denies the tax revenue of oil to the Kremlin, and to prevent the rest oil and gas imports from Russia,” said Myllyvirta.
The G-7, Australia and the EU implemented a $60-per-barrel price cap on Russian oil on December 5. This coincided with a move by the EU and the UK to impose a ban on seaborne imports of Russian crude oil.
Together, the measures represent the most significant step yet to curb the fossil fuel export revenue that funds the Kremlin’s attack on Ukraine.
Russian President Vladimir Putin attends a meeting at the Kremlin in Moscow on January 6, 2022.
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Energy analysts are skeptical about the impact of a cap on Russian oil prices, especially since Moscow has rerouted much of Europe’s sea freight to the likes of China, India and Turkey.
Russia retaliated against the West’s measures late last month by banning the sale of oil to countries that followed the price cap.
Kremlin spokesman Dmitry Peskov previously said the Western price cap on Russian oil would not affect its ability to continue what it described as a “special military operation” in Ukraine. Peskov also warned the move would disrupt global energy markets, Reuters reported.
‘Financial bloodline for Putin’s war’
Oleg Ustenko, economic advisor to Ukrainian President Volodymyr Zelenskyy, said Wednesday that while it is “very good news” that Russia is losing revenue from fossil fuel exports as a result of Western measures, they are “not enough at all .”
Ustenko echoed Zelenskyy’s calls for a price cap set at a much lower level, saying in a briefing that every escalation of economic sanctions against the Kremlin should be seen as the oil price cap fell to a target range of $20 to $30 per barrel.
“There is no reason to wait and see,” Ustenko said. “It’s obvious.”
“The EU and G7 have the power and all the means to break this bloodline. Only power and money speak for the Kremlin.”
Svitlana Romanko
Founder and director of Razom We Stand
The CREA report found that the measures caused a drop in cargo volumes and oil prices in Russia that cut the country’s export earnings by 180 million euros per day.
By increasing exports of refined oil products to the EU and the rest of the world, the report says that Moscow was able to recover 20 million euros per day, resulting in a net loss of daily 160 million euros since the Western measures were implemented. .
Russia still makes an estimated 640 million euros per day from fossil fuel exports, the report said.
“The first month of the embargo confirms what we have been saying since the beginning of the invasion: the income from the export of fossil fuels is the financial bloodline for Putin’s war,” said Svitlana Romanko, founder and director of the Ukrainian human rights group Razom We. Stand (Together We Stand).
“The EU and the G7 have the power and all the means to cut this bloodline,” he added. “Only power and money speak in the Kremlin.”
Romanko called on the price cap coalition to lower the price limit, strengthen embargo enforcement and introduce more penalties to close loopholes.
The CREA report said that lowering the oil price cap against Russia to between $25 and $30 per barrel, a range it noted was “well above” production and transportation costs, would reduce of oil export revenue in Russia at least 100 million euros per day.
It said the Western price cap coalition boasted “strong leverage” to push the price caps, adding that “Russia has not found a meaningful alternative to ships owned and/or insured by the G7 for transportation of Russian crude oil and oil products from. Baltic and Black Sea ports.”
