European countries have been scrambling to find alternative sources of oil and gas following Russia’s all-out invasion of Ukraine in February 2021.
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Russia’s fossil fuel export revenues plummeted in December, significantly hampering President Vladimir Putin’s ability to fund the war in Ukraine, a new report said in December.
The findings, Ukrainian officials and activists say, illustrate the effectiveness of targeting Russia’s oil revenues and underscore the urgent need for Western politicians to step up financial pressure on Moscow to help Kyiv prevail.
The report, released Wednesday by the Center for Research on Energy and Clean Air, an independent Finnish think tank, found that the first month of the European Union’s ban on sea imports of Russian crude and the G-7 price cap cost Moscow an estimated $160 million had euros ($171.8 million) per day.
The CREA report states that Western measures were largely responsible for a 17% drop in Russian fossil fuel export revenues in the final month of 2022. That means Russia — one of the world’s top oil producers and exporters — saw fossil fuel export revenues plummet to the lowest level since Putin launched his full-scale invasion of Ukraine in late February.
“The EU oil ban and oil price cap have finally come into effect and the impact is as significant as expected,” said Lauri Myllyvirta, senior analyst at CREA, 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 Kremlin taxable oil profits and limit remaining oil and gas imports from Russia,” Myllyvirta said.
The G-7, Australia and the EU introduced a $60 per barrel price cap for Russian oil on December 5. This came with a move by the EU and the UK to impose a ban on seaborne imports of Russian crude oil.
Taken together, the measures reflect by far the most important step in curbing the fossil fuel export earnings that are funding the Kremlin’s attack in Ukraine.
Russian President Vladimir Putin attends a meeting at the Kremlin in Moscow January 6, 2022.
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Energy analysts were skeptical about the impact of a price cap on Russian oil given Moscow’s ability to divert much of its European sea shipments to countries including China, India and Turkey.
Russia retaliated against Western measures late last month by banning the sale of oil to countries that adhere to the price cap.
Kremlin spokesman Dmitry Peskov earlier said a Western price cap on Russian oil would not affect its ability to sustain its “special military operation” in Ukraine. Peskov also warned that the measure would destabilize global energy markets, Portal reported.
“Financial Bloodline for Putin’s War”
Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskyy, said on Wednesday that while it is “very good news” that Russia is losing fossil fuel export revenues as a result of Western measures, it is “definitely not enough”.
Ustenko reiterated Zelenskyy’s calls for a price cap to be set at a much lower level, telling a briefing that any escalation of economic sanctions against the Kremlin should result in the oil price cap being lowered to a target range of $20-$30 a barrel .
There is “no reason to wait,” said Ustenko. “It’s already clear.”
“The EU and the G7 have the power and all the means to sever this bloodline. Only force and money speak to the Kremlin.”
Svitlana Romanko
Founder and Director of Razom We Stand
CREA’s report found that the measures have resulted in a drop in Russian oil supply volumes and prices, which has cut the country’s export earnings by €180 million a day.
By boosting exports of refined oil products to the EU and the rest of the world, the report said, Moscow has been able to reclaim €20 million a day, resulting in a net daily loss of €160 million since Western measures came into effect have .
Russia still earns an estimated 640 million euros a day from fossil fuel exports, the report says.
“The first month of the embargo proves what we’ve been saying since the invasion began: fossil fuel export revenues are 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 sever this bloodline,” she added. “Only violence and money speak to the Kremlin.”
Romanko called on the price cap coalition to lower the price cap, step up enforcement of the embargo and introduce additional sanctions to close loopholes.
The CREA report states that lowering the oil price cap with Russia to $25-$30 a barrel, a range still “well above” production and transportation costs, would cut Russia’s oil export earnings by at least €100 million a day .
It said that the Western price cap coalition had “strong leverage” to lower price caps, adding that “Russia has not found a viable alternative to ships owned and/or insured in the G7 to… to transport Russian crude oil and oil products to Baltic and Black Sea ports.”