The western sanctions on Russia have had a significant impact on the country’s state oil revenues, diverting billions of dollars to shipping and refining firms, some with Russian connections, primarily based in China, India, Greece and the UAE. Although none of these firms is in violation of the sanctions, they have benefited from the measures imposed by the European Union and the United States to decrease the income of what they call Putin’s war machine.
Despite the sanctions, Russia’s income from oil exports has dropped, but the volume of exports has remained relatively stable. Putin had warned the West that sanctions would result in an energy price rally, but instead, international benchmark Brent oil prices have decreased to $80 per barrel from a near-all-time high of $139 in March 2022, after the start of the war in Ukraine.
In January, after the G7 nations imposed a price cap on Russian oil, Russia’s oil export revenue fell by 40% YoY, according to the country’s finance ministry. Sergey Vakulenko, a former head of strategy at Gazprom and now a non-resident fellow at the Carnegie Endowment for International Peace, stated that the low official oil price has resulted in a significant impact on the Russian state budget.
The sanctions imposed on Russia, considered the harshest on any single state, include a ban on purchases of Russian energy by the US and the EU, as well as a ban on the shipping of Russian crude unless sold at or below $60 per barrel. As a result, Russia has redirected most of its crude and refined products to Asia by offering steep discounts to buyers in China and India. The ban on shipping and the price cap have made buyers cautious, forcing Russia to pay for the transportation of its crude as it lacks enough tankers to transport its exports.
The sanctions have resulted in lower revenues for Russia, but higher profits for some intermediaries and sections of the global shipping industry, including Russian state shipper Sovcomflot and Greek shipping firms such as TMS Tankers Management and Stealth Maritime. The head of the International Energy Agency, Fatih Birol, stated that the price cap alone reduced Russia’s revenue by $8 billion in January. The exact impact on the earnings of producers and the state is difficult to quantify as some of the lost revenues are captured by Russian firms and because some Russian oil grades, including Pacific grade ESPO, are worth more than Urals.
In conclusion, the sanctions imposed by the European Union and the United States on Russia have had a significant impact on the country’s oil industry. The sanctions, designed to reduce the state’s oil revenues, have led to a drop in official oil prices and a decrease in the state budget’s income. Despite the sanctions, the volume of exports has remained relatively stable, with most crude and refined products being diverted to Asia. The sanctions have also had unintended consequences, with some shipping and refining firms, some with Russian connections, benefitting from the measures. The global shipping industry, which has seen low profits or losses for decades, is now enjoying a financial boom from moving Russian oil. The price cap on Russian oil imposed by the Group of Seven nations has reduced Moscow’s revenue by $8 billion in January alone. Although some of the lost revenues are captured by Russian firms, the exact impact on earnings of producers and the state is difficult to quantify.