EXCLUSIVE REPORT: Russia’s Energy Export Revenues Experience Significant Fluctuations Amidst Voluntary Production Cuts and Geopolitical Challenges

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In May 2024, Russia’s monthly fossil fuel export revenues saw a notable decline, attributed primarily to voluntary production cuts and fluctuating global oil prices. This article delves into the intricate dynamics of Russia’s energy export landscape, highlighting the impact of production decisions, geopolitical tensions, and shifting market demands on its revenue streams.

Decline in Export Revenues

Russia’s monthly fossil fuel export revenues dropped by 6% to EUR 697 million per day, marking the lowest levels since January. This decline was driven by a 5% reduction in exported volumes and a concurrent drop in the price of Russian crude oil. These developments are closely linked to Russia’s voluntary production cuts, aimed at stabilizing the market after exceeding its OPEC+ production commitments in April.

Impact of Voluntary Production Cuts

The decision to voluntarily cut production significantly affected Russia’s crude oil export volumes. These cuts were a strategic move to manage supply and demand dynamics within the OPEC+ framework. However, the reduction in export volumes led to a notable decrease in revenue from crude oil sales.

Refining Capacity and Recovery

Russia’s refining capacity, previously damaged by Ukrainian drone strikes, showed a sharp recovery in May. This recovery was evidenced by a 12% uptick in oil products export volumes. As a result, revenues from seaborne oil products exports increased by 8% month-on-month to EUR 221 million per day. The rebound in refining capacity is a testament to Russia’s resilience and ability to adapt to adverse conditions.

India’s Increasing Imports

India’s month-on-month imports of Russian crude oil rose by 8% in May, reaching the highest levels since July 2023. Russian crude comprised 41% of India’s total crude imports in May, and new agreements facilitating payments in rubles are expected to bolster this trade further. This development underscores the strengthening economic ties between Russia and India amidst global geopolitical shifts.

LNG Exports to France and Belgium

In May, Russian LNG made up 41% of France’s total LNG imports, a 14% increase from the previous month. Belgium also saw an 11% rise in total LNG imports, with Russian LNG accounting for 66% of these imports, a 15% increase from April. These figures highlight the ongoing dependency of European countries on Russian energy supplies despite geopolitical tensions.

The Role of ‘Shadow’ Tankers

A significant portion of Russian oil exports was facilitated by ‘shadow’ tankers, with 270 vessels averaging 16 years of age involved in the trade. These tankers often lack sufficient Protection & Indemnity (P&I) insurance, posing environmental and financial risks in the event of accidents. The use of such tankers raises concerns about the safety and transparency of Russia’s oil export practices.

EU/G7 Insurance and Sanctions Evasion

EU/G7 countries’ insurance plays a crucial role in Russian oil exports, despite sanctions aimed at constraining Russian revenues. Ship-to-ship (STS) transfers in coastal waters, facilitated by tankers covered by EU/G7 insurance, enable Russia to obfuscate the origin of its oil and evade price cap policies. Approximately 63% of these transfers were facilitated by tankers with EU/G7 insurance coverage.

Price Cap Policies and Revenue Impact

A lower price cap of USD 30 per barrel could have significantly impacted Russian revenues. Since the imposition of sanctions in December 2022, such a price cap would have slashed Russian revenues by EUR 55 billion (25%) by the end of May 2024. In May alone, the price cap could have reduced revenues by EUR 3.5 billion (25%).

Revenue Trends and Market Dynamics

In May 2024, Russia’s monthly revenues from seaborne crude oil dropped by 15% to EUR 226 million per day. This decline was due to a combination of reduced export volumes and a 4–6% drop in the prices of various grades of Russian crude oil. The drop in prices and export volumes aligned with Russia’s voluntary production cuts, highlighting the delicate balance between production levels and market prices.

Pipeline Oil Revenue Decline

Revenues from pipeline oil exports also saw a decline, dropping by 2% to EUR 95 million per day. This decrease occurred despite a minimal drop in export volumes, further emphasizing the impact of lower crude oil prices on Russia’s overall revenue streams.

Increase in Oil Products Exports

Contrary to the decline in crude oil revenues, Russian revenues from seaborne oil products exports saw an 8% increase, reaching EUR 221 million per day. The 12% increase in exported volumes suggests a significant recovery in Russia’s refining capacity, which had been hampered by earlier drone strikes.

LNG and Pipeline Gas Revenues

In May, Russian LNG export revenues experienced a marginal 1% increase to EUR 38 million per day. This growth was driven by expanded exports to Asian markets, particularly China, and higher natural gas prices in both Asia and Europe. However, pipeline gas export revenues saw an 8% decline, falling to EUR 60 million per day.

Coal Export Revenues

Russian revenues from coal exports experienced a substantial 17% decline, dropping to EUR 56 million per day. This decrease highlights the broader challenges faced by Russia’s fossil fuel export sector amidst fluctuating global demand and shifting market conditions.

Challenges with Gazprom’s Chinese Market Strategy

Russia’s geopolitical maneuvers, including its full-scale invasion of Ukraine and subsequent energy blackmailing of the EU, have significantly impacted Gazprom, the state-controlled gas monopoly. With the loss of its primary market in the EU, Gazprom faces substantial financial challenges. In 2023, Gazprom reported a loss of 629 billion rubles (USD 6.9 billion), the largest in over 25 years.

Securing the Chinese Market

To mitigate these losses, securing the Chinese market through the Power of Siberia-2 pipeline has become critical for Gazprom. However, this strategy faces significant hurdles. In May, China demanded that Gazprom sell gas at subsidized prices similar to those offered in the domestic market. Furthermore, China plans to purchase only a small portion of its natural gas needs through this pipeline, posing additional challenges for Gazprom’s profitability.

Implications for Gazprom’s Future

Even if the expansion into the Chinese market proceeds and the Power of Siberia-2 pipeline is built, the profits could be minimal, making it difficult for Gazprom to compensate for the losses incurred from losing the EU market. This situation underscores the complex and challenging landscape of Russia’s energy export sector, as it navigates geopolitical tensions and shifting market dynamics.

CategoryMetricValue
Monthly Fossil Fuel Export RevenuesRevenuesEUR 697 million/day
Monthly Fossil Fuel Export RevenuesMonth-on-Month Drop6%
Seaborne Crude Oil RevenuesRevenuesEUR 226 million/day
Seaborne Crude Oil RevenuesMonth-on-Month Drop15%
Pipeline Crude Oil RevenuesRevenuesEUR 95 million/day
Pipeline Crude Oil RevenuesMonth-on-Month Drop2%
Seaborne Oil Products RevenuesRevenuesEUR 221 million/day
Seaborne Oil Products RevenuesMonth-on-Month Increase8%
LNG Export RevenuesRevenuesEUR 38 million/day
LNG Export RevenuesMonth-on-Month Increase1%
Pipeline Gas Export RevenuesRevenuesEUR 60 million/day
Pipeline Gas Export RevenuesMonth-on-Month Drop8%
Coal Export RevenuesRevenuesEUR 56 million/day
Coal Export RevenuesMonth-on-Month Drop17%
India’s Russian Crude ImportsPercentage of Total Imports41%
France’s Russian LNG ImportsPercentage of Total Imports41%
Belgium’s Russian LNG ImportsPercentage of Total Imports66%
Shadow TankersNumber of Tankers270
Shadow TankersAverage Age of Tankers16 years
Shadow TankersVolume Transported60%
Shadow TankersInsurance CoverageInsufficient P&I Insurance
EU/G7 Insurance on TankersPercentage of STS Transfers63%
EU/G7 Insurance on TankersNumber of TransfersTwo-thirds of Transfers
Impact of USD 30 Price CapTotal Revenue Reduction Since Dec 2022EUR 55 billion
Impact of USD 30 Price CapRevenue Reduction in MayEUR 3.5 billion
Impact of USD 30 Price CapPercentage Reduction25%
Gazprom Financial LossesReported LossesUSD 6.9 billion
Gazprom’s Chinese Market StrategyPipeline ProjectPower of Siberia-2
Gazprom’s Chinese Market StrategyChina’s Price DemandSubsidized Prices
Gazprom’s Chinese Market StrategyChina’s Purchase PlanSmall Portion of Needs

The Dynamics of Russia’s Fossil Fuel Exports

The geopolitical landscape surrounding Russia’s fossil fuel exports has undergone significant shifts since the country’s invasion of Ukraine. Sanctions and global political dynamics have led to substantial changes in the patterns of fossil fuel trade, with varying impacts on different sectors such as coal, crude oil, liquefied natural gas (LNG), oil products, and pipeline gas. This article provides a detailed analysis of these changes, focusing on the major importers, the evolving market strategies, and the broader economic and geopolitical implications.

TABLE : Who is buying Russia’s fossil fuels?

CommodityCountryPercentage of Total Exports (%)Value (EUR bn)DetailsMonthly Details (May 2024)Monthly Value (May 2024) – EUR bn
CoalChina45Dec 2022 to May 2024
CoalIndia18Dec 2022 to May 2024
CoalSouth Korea10Dec 2022 to May 2024
CoalTaiwan5Dec 2022 to May 2024
Crude OilChina48Dec 2022 to May 2024Crude oil comprised 69% of China’s imports from Russia45
Crude OilIndia35Dec 2022 to May 2024India’s month-on-month imports of Russian crude increased by 8%22
Crude OilEU7Dec 2022 to May 202419
Crude OilTurkey6Dec 2022 to May 2024Majority of Turkey’s imports consisted of oil products27
LNGEU49Dec 2022 to May 2024No sanctions imposed on Russian LNG shipments to the EU
LNGChina20Dec 2022 to May 2024
LNGJapan18Dec 2022 to May 2024
Oil ProductsTurkey24Dec 2022 to May 2024CREA and CSD investigation suggests European entities may have imported Russian oil products mixed or re-exported from oil storage terminals in Turkey
Oil ProductsChina12Dec 2022 to May 2024
Oil ProductsBrazil11Dec 2022 to May 2024
Pipeline GasEU39Dec 2022 to May 2024Pipeline gas made up the largest share of the EU’s purchases
Pipeline GasTurkey29Dec 2022 to May 2024
Pipeline GasChina26Dec 2022 to May 2024

Major Importers of Russian Fossil Fuels

Image : Russian fossil fuel exports – Source: CREA

Coal

From December 2022 to May 2024, China emerged as the largest importer of Russian coal, purchasing 45% of all exports. India followed with 18%, and South Korea accounted for 10%. Taiwan completed the list with 5% of the exports. These figures underscore China’s dominant position in the coal market and its significant role in supporting Russia’s coal industry despite international sanctions.

Crude Oil

China has also been the primary buyer of Russia’s crude oil, securing 48% of the total exports. India, with 35%, has significantly increased its imports, followed by the European Union (EU) at 7% and Turkey at 6%. This shift reflects a strategic realignment as India capitalizes on discounted Russian crude, subsequently refining and re-exporting it to markets in Europe and the United States.

Image : Daily flows by geography – Source: CREA

Liquefied Natural Gas (LNG)

The EU has been the largest buyer of Russian LNG, accounting for 49% of exports, followed by China (20%) and Japan (18%). Notably, no sanctions have been imposed on Russian LNG shipments to the EU, allowing for continued imports and logistical reliance on EU ports for transshipment operations.

Oil Products

Turkey stands as the largest importer of Russian oil products, purchasing 24% of exports. China (12%) and Brazil (11%) follow. The EU and G7’s sanctions on seaborne Russian oil products, implemented in February 2023, have reshaped the market, pushing Turkey to the forefront as a key destination for these products.

Pipeline Gas

The EU remains the largest importer of Russian pipeline gas, securing 39% of the exports, followed by Turkey (29%) and China (26%). This reliance on pipeline gas highlights the EU’s logistical and infrastructural dependencies, despite ongoing efforts to diversify energy sources.

Monthly and Weekly Trends in 2024

March 2024 Analysis

In March 2024, China’s total imports from Russia were dominated by crude oil, comprising 78% of the total value. Despite a 3% reduction in the volume of Russian crude, revenues increased by 8%, primarily due to higher-priced Sokol grade crude oil. Turkey’s imports were significant, with oil products making up half of the total imports. India’s imports saw a substantial rise, with crude oil accounting for 77% of the total fossil fuel imports from Russia.

May 2024 Trends

By May 2024, China continued to lead in imports, accounting for 44% of Russia’s monthly export earnings from the top five importers. India followed, with 77% of its imports comprising crude oil. Turkey remained a major importer, with oil products forming the bulk of its imports. The EU’s imports were primarily pipeline gas, LNG, and crude oil via pipelines, reflecting the region’s mixed energy strategy amidst sanctions and market adjustments.

Impact of Sanctions and Geopolitical Developments

The ongoing sanctions imposed by the EU and G7 have significantly impacted Russia’s fossil fuel revenues. However, countries like China, India, and Turkey have capitalized on discounted prices, increasing their imports and reshaping the global energy market. The EU’s efforts to reduce dependency on Russian fossil fuels have led to a phased approach, balancing economic impacts with energy security needs.

EU’s Strategic Adjustments

The EU has granted exemptions for Russian crude oil imported through the southern branch of the Druzhba pipeline to Hungary, Slovakia, and the Czech Republic. These exemptions highlight the complex interplay between sanctions and energy dependencies. Additionally, the EU is discussing a potential ban on the transshipment of Russian LNG to third countries, which could be included in its 14th sanctions package.

India’s Increasing Role

India’s strategic maneuvers in the fossil fuel market have positioned it as a significant player. The country’s imports of Russian crude reached the highest levels since July 2023, and new deals that bypass earlier currency disagreements suggest a further increase in imports. This shift not only benefits India’s energy security but also provides Russia with a stable and growing market amidst Western sanctions】.

Turkey’s Market Position

Turkey has emerged as a critical hub for Russian oil products, especially after the EU/G7 sanctions on refined oil products. The country’s ports continue to receive significant volumes of Russian oil, underscoring its strategic importance in the regional energy landscape. Investigations suggest that European entities may be importing Russian oil products mixed or re-exported from Turkish storage terminals, further complicating the sanctions’ effectiveness.

The dynamics of Russia’s fossil fuel exports have been profoundly influenced by international sanctions, geopolitical shifts, and strategic realignments by key importing countries. China, India, and Turkey have significantly increased their imports, leveraging discounted prices and filling the void left by reduced European purchases. The EU’s phased reduction in dependency on Russian energy reflects the complexity of balancing economic impacts with energy security. As global energy markets continue to evolve, the interplay between sanctions, market strategies, and geopolitical developments will remain a critical factor shaping the future of fossil fuel trade.

This comprehensive analysis highlights the need for ongoing monitoring and adaptation in response to the rapidly changing geopolitical and economic landscape.

The Dynamics of Russian Fossil Fuel Export Revenues Amid Voluntary Production Cuts and Global Market Adjustments

Russia’s fossil fuel export landscape has undergone significant shifts in recent months, influenced by voluntary production cuts, refining capacity recovery, and changing import levels from key countries. In April 2024, Russian fossil fuel export revenues saw a minor month-on-month decrease, dropping by 1% to EUR 732 million per day. This slight decline follows a 13% rise in seaborne crude oil revenues in March, highlighting the volatility in the market​ ​.

Voluntary Production Cuts and Market Adjustments

In response to the global economic conditions and to maintain oil prices, Russia has been actively managing its production levels. The average Urals spot price rose by 3% month-on-month in April 2024, staying significantly above the crude oil price cap of USD 76.12 per barrel​. Similarly, the prices for the East Siberia Pacific Ocean (ESPO) and Sokol blends of Russian crude, which are primarily sold to Asian markets, saw modest increases of 1.6% and 1.9%, respectively. Despite these price adjustments, discounts on these grades remained relatively stable.

Export Dynamics and Shipping Routes

The export dynamics of Russian fossil fuels have also been affected by the use of ‘shadow’ tankers. In April 2024, 71% of Russian seaborne crude oil was transported by these tankers, while tankers owned or insured in countries implementing the price cap accounted for the remaining 29%. This reliance on ‘shadow’ tankers raises concerns about environmental risks and sanctions evasion. These tankers, with an average age of 17 years, pose significant risks due to their questionable insurance coverage, potentially lacking sufficient Protection & Indemnity (P&I) insurance to cover the costs of oil spill cleanups​.

Import Trends from Key Countries

China and India remain significant importers of Russian fossil fuels. In March 2024, China’s imports of Russian crude oil, particularly the higher-priced Sokol grade, rose despite an overall 3% reduction in total import volumes. Conversely, China’s imports of oil products from Russia saw a dramatic 36% decline in February​​.

India’s import dynamics also reflect a complex picture. In February 2024, India’s import volumes of Russian crude oil decreased by 7%, a continuation of a three-month downward trend influenced by payment issues and OFAC sanctions. However, by March, India’s crude oil imports from Russia saw a significant rebound, with a 48% rise in revenues, marking the highest volume since September 2023​​.

European Union’s Role

The European Union (EU) continues to play a pivotal role in Russia’s fossil fuel exports. Despite sanctions, the EU remains a major buyer due to exemptions for pipeline gas and crude oil delivered via pipelines like the Druzhba. In March 2024, Hungary was the largest EU importer of Russian fossil fuels, followed by Slovakia and the Czech Republic. Belgium and France also maintained substantial imports, primarily in the form of LNG​ )​.

Environmental and Financial Implications

The extensive use of older ‘shadow’ tankers for transporting Russian oil presents serious environmental and financial risks. These vessels often lack adequate insurance coverage, raising the stakes for potential oil spills and the associated cleanup costs, which could fall on the taxpayers of coastal countries. In April 2024, ship-to-ship (STS) transfers involving ‘shadow‘ tankers in EU waters amounted to EUR 206 million, further complicating enforcement of sanctions and price caps​​.

Russia’s fossil fuel export revenues are subject to a complex interplay of voluntary production cuts, market price adjustments, and evolving import strategies from major buyers like China, India, and the EU. While managing to maintain significant revenue streams, Russia’s reliance on ‘shadow’ tankers and the associated environmental risks highlight the ongoing challenges in navigating the global energy market under the current geopolitical landscape​ .

Image .- Ship-to-ship transfers of Russian crude and oil product in EU waters – source CREA – Kpler – Equasis

The Evolving Landscape of Oil Prices

The global oil market has been subject to significant fluctuations and disruptions, influenced by geopolitical tensions, economic policies, and market dynamics. This article delves into the latest developments in oil prices, particularly focusing on the role of Russian oil exports, the impact of sanctions, and the environmental and financial risks posed by ‘shadow’ tankers.

CategoryDetailsImplications
Urals Spot Price Change5% month-on-month dropStill above crude oil price cap
Urals Spot PriceUSD 73.13 per barrelTrade continues despite price cap
ESPO & Sokol Price Drop6% dropStable and modest discounts
ESPO DiscountUSD 4.22 per barrelStable and modest discounts
Sokol DiscountUSD 6.02 per barrelStable and modest discounts
Vessels in Russian PortsG7 and European countries vessels continued to loadPossible sanctions breaches
Urals Discount to BrentUSD 12.38 per barrel discount compared to BrentReflects market dynamics
Reliance on European & G7 ShippingHighly reliantSignificant reliance on non-domestic shipping
Price Cap Compliance (May)40% subject to oil price capPrice cap enforcement needed
Shadow Tankers (Seaborne Crude Oil)74% transported by shadow tankersEvasion of price cap
European & G7 Tankers (Seaborne Crude Oil)26% transported by price cap compliant tankersCompliance with price cap
Shadow Tankers (Oil Products)37% transported by shadow tankersSignificant portion evades price cap
European & G7 Tankers (Oil Products)63% transported by price cap compliant tankersCompliance with price cap
Pacific Region PortsPorts like Kozmino exporting at prices exceeding capNon-compliance with price cap
CREA Investigation (Oct-Dec 2023)No shipments traded below price cap, 8 shipments of Urals crude on UK P&I insured tankers, additional 27% revenue (GBP 87 mn)Sanctions violations and increased revenue for Russia
Shadow Tankers (Risks)286 vessels exported, 213 shadow tankers with average age of 17 years, oldest 37 years, 25% at least 20 years oldEnvironmental and financial risks due to age and insurance issues
Shadow Tankers (Environmental & Financial Concerns)Older shadow tankers raise concerns due to questionable insurance, potential cost of over one billion euros for cleanupPotential financial burden on EU taxpayers
EU Ship-to-Ship Transfers (May)STS transfers valued at EUR 700 mnUndermining of sanctions
EU/G7 Insured STS Transfers63% (EUR 444 mn) facilitated by EU/G7 insured tankersUndermining of sanctions
Shadow Tanker STS Transfers17-year-old shadow tankers conducted STS transfers totaling EUR 256 mnEnvironmental and financial risks

Current Trends in Oil Prices

As of June 2024, the global oil market has witnessed notable price changes. The average Urals spot price in May dropped by 5% month-on-month, settling at USD 73.13 per barrel. Despite this decline, the Urals price remains above the crude oil price cap. Similarly, the prices of East Siberia Pacific Ocean (ESPO) and Sokol blends of Russian crude oil, predominantly sold to Asian markets, experienced a 6% drop. The discounts on ESPO grade and Sokol blends were modest, at USD 4.22 per barrel and USD 6.02 per barrel, respectively​.

Image : Russian and Brent Oil Prices Over Time – Price of oil (USD/bbl) with 30 day rolling avaragesource CREA – Kpler – Equasis

The Role of ‘Shadow’ Tankers

A significant portion of Russian oil exports is transported by ‘shadow’ tankers, which are older vessels often not subject to the same regulatory scrutiny as newer ones. In May 2024, 286 vessels exported Russian crude oil and oil products, of which 213 were ‘shadow’ tankers with an average age of 17 years. The oldest of these vessels was 37 years old, and 25% were at least 20 years old​.

Environmental and Financial Risks

The use of older ‘shadow’ tankers poses considerable environmental and financial risks. These vessels often have questionable insurance coverage, lacking sufficient Protection & Indemnity (P&I) insurance to cover the costs of an oil spill or other maritime catastrophe. In case of such accidents, EU countries might bear the financial burden of cleanup efforts, which could amount to over one billion euros. This situation also poses significant threats to marine ecology in the affected regions.

Impact of Sanctions and Compliance Issues

Sanctions have played a crucial role in shaping the dynamics of Russian oil exports. In May 2024, 40% of Russian seaborne crude oil and its products were transported by tankers subject to the oil price cap. The remaining 60% were shipped by ‘shadow’ tankers, which were not subject to the price cap policy. Specifically, 74% of Russian seaborne crude oil was transported by ‘shadow’ tankers, while only 26% was transported by tankers owned or insured in countries implementing the price cap​.

Ship-to-Ship Transfers

Ship-to-ship (STS) transfers have been a significant method for evading sanctions. In May 2024, vessels transporting Russian oil or petroleum products conducted STS transfers valued at EUR 700 million in EU waters. A majority (63%) of these transfers, valued at EUR 444 million, were facilitated by tankers covered by EU/G7 insurance. These STS transfers undermine sanctions by allowing Russia to evade price caps and obscure the origin of the oil​ ​.

Geopolitical Implications and Market Reactions

Geopolitical tensions and sanctions have not only impacted the transportation and pricing of Russian oil but also influenced global oil market dynamics. A recent investigation by the Centre for Research on Energy and Clean Air (CREA) found that between October and December 2023, no shipments departing the port of Novorossiysk were traded below the price cap. During this period, eight shipments of Urals crude from the port were transported on tankers covered by UK P&I insurance, contributing an additional 27% (GBP 87 million) in revenue to Russia​​.

The landscape of global oil prices remains complex and dynamic, heavily influenced by geopolitical developments, market forces, and regulatory measures. The reliance on ‘shadow’ tankers and the ongoing challenges in enforcing sanctions highlight the need for vigilant monitoring and robust policy responses to mitigate environmental and financial risks. As the global economy navigates these uncertainties, the oil market will continue to be a critical area of focus for policymakers, industry stakeholders, and environmental advocates.

How Ukraine’s Allies Can Tighten the Screws on Russia

Russia’s fossil fuel export revenues have significantly declined since sanctions were imposed, constricting President Putin’s ability to fund the ongoing war in Ukraine. Despite these measures, additional steps are necessary to further limit Russia’s export earnings and weaken the Kremlin’s war chest. Recent developments and enhanced strategies include lowering the oil price cap, increasing monitoring and enforcement of sanctions, and banning the import of unsanctioned fossil fuels such as LNG and pipeline fuels into the European Union (EU).

Lowering the Oil Price Cap

A more aggressive reduction in the oil price cap to USD 30 per barrel (still above Russia’s production cost, which averages USD 15 per barrel) could have significantly impacted Russia’s revenue. From the imposition of sanctions in December 2022 until the end of May 2024, a USD 30 per barrel price cap would have slashed Russia’s revenue by approximately EUR 55 billion, a 25% reduction. In May alone, this lower cap would have reduced Russian revenues by EUR 3.5 billion. This approach would not only reduce Russia’s oil export prices but also potentially induce increased production to offset the revenue loss.

Enhancing Enforcement of Sanctions

Thorough enforcement of the current price cap could have further reduced Russia’s revenues by 8% (EUR 18.5 billion) from December 2022 to May 2024. In May alone, effective enforcement could have slashed revenues by approximately EUR 1.36 billion, a 10% decrease. To achieve this, sanction-imposing countries must prevent Russia’s growth in “shadow” tankers that evade the oil price cap policy. Prohibiting the sale of old tankers to owners in countries not implementing the cap would help limit this fleet.

Refining Loopholes

The G7+ countries must close refining loopholes by banning the importation of oil products produced from Russian crude oil. This measure would discourage third countries from importing significant amounts of Russian crude and assist in reducing Russia’s export revenues. Import restrictions on oil products from refineries processing Russian crude would also lower the price of Russian oil as it struggles to find buyers.

Proactive Enforcement Measures

Enforcement agencies overseeing sanctions must take proactive actions against entities violating the price cap, including insurers, shippers, and vessel owners. Despite clear evidence of violations, more penalties must be enforced and shared publicly to increase the perceived risk of being caught, serving as a deterrent. Penalties for violations should be significantly harsher than the current 90-day ban, including permanent bans and substantial fines for vessels found guilty of sanctions violations.

Tackling ‘Shadow’ Tankers

The Office of Foreign Assets Control (OFAC) and the Office of Financial Sanctions Implementation (OFSI) must continue targeting ‘shadow’ tankers to hinder Russia’s ability to transport oil above the price cap. The Center for Research on Energy and Clean Air (CREA) estimates that OFAC’s actions against these tankers have already reduced Russia’s crude oil export revenues by 5% (EUR 512 million per month).

Additional Measures

Further measures include banning Ship-to-Ship (STS) transfers of Russian oil in EU/G7 waters. These transfers, often undertaken by ‘shadow’ tankers, pose environmental and financial risks to coastal states while supporting Russia in exporting high volumes of crude oil. Coastal states should require these tankers to provide documentation of adequate maritime insurance. Failure to comply should result in their addition to the OFAC, OFSI, and European sanctions list.

Recent Developments

Recent sanctions and measures continue to pressure Russia economically. The United States, in coordination with the G7 and other international partners, has implemented additional sanctions targeting Russia’s financial infrastructure, military-industrial base, and energy revenues. These measures include sanctions on over 300 individuals and entities involved in circumventing and evading sanctions, as well as enhancing the territorial reach and categories covered by export controls​​.

To effectively constrain Russia’s ability to fund its war against Ukraine, a multi-faceted approach involving stricter price caps, comprehensive enforcement of existing sanctions, closing refining loopholes, and proactive measures against sanction violations is essential. The continued collaboration and determination of Ukraine’s allies are crucial in tightening the screws on Russia and supporting Ukraine’s defense efforts.

This article compiles and expands upon the latest updates and analytical insights to present a comprehensive overview of the strategies and measures necessary to further tighten sanctions on Russia and diminish its war capabilities.


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