The International Energy Agency [IEA] has noted that Russia’s oil revenue has been seriously affected by price caps and sanctions imposed by Western nations, even as Moscow has been able to redirect its product outside of Europe.
The Group 7 and the European Union had imposed a price cap of $60 a barrel on Russian seaborne crude oil in December, banning imports, ramping up sanctions for Russia’s war on Ukraine.
The initial sanctions were closely followed on February 5 by an EU embargo on refined Russian oil products. The sanctions also prevent European firms from providing shipping and related financial services for Russian cargoes worldwide, unless they abide by the price cap.
The idea was to hit Vladimir Putin’s war chest without causing a supply shock, while reducing his national revenue and ability to sustain the war.
“The price cap was put in place to allow for Russian oil to continue to flow to market, but at the same time reducing Russian revenues. Even though Russian production is coming to market, we’re seeing that the revenues that Russia receives from its oil and gas have really come down,” Toril Bosoni, head of the IEA’s oil industry and markets division, said in a CNBC interview on Wednesday.
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IEA said in a February market report that Russia’s export revenue fell 36% in January from a year ago to $13 billion.
“Russian fiscal receipts from the oil industry is down 48% in the year, so in that sense we can say that the price cap is having its intended effect,” Bosoni said.
He also noted the gap between prices for Russian Urals, the country’s largest crude oil export, and those of Brent crude, the international benchmark.
Russia sold Urals at an average price of $49.48 per barrel in January, the Russian finance ministry recently said, while Brent fetched more than $80 a barrel last month.
Last Thursday, Brent was around $85.45, and the Urals blend was around $56 on Wednesday. But Russia’s 2023 budget is based on a Urals price average of $70.10 a barrel, according to the CNBC report, suggesting the Kremlin will run deficits at current price levels.
Oil exports and production by Russia have held up “much better than expected” in recent months, Bosoni said, pointing out that Russia has been able to reroute crude shipments of crude to Asia and the G-7 price cap appears to be helping sales volume as Russia has had to sell its oil at lower price points to countries complying with the mandate.
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Output in January was down “only” 160,000 barrels a day from pre-war levels, and Russia shipped 8.2 million barrels a day to markets, said the agency in its report.
It also noted Russian deputy prime minister, Alexander Novak, has said his country would curb output by 500,000 barrels a day in March rather than sell to countries that recognize the G-7 price caps.
Bosoni told CNBC the move was in line with its expectations and that there’s enough supply to meet demand in upcoming months.
The market may tighten around summertime when refinery activity accelerates to meet demand, and China’s expected rebound in activity is likely to jump, she said.
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