The West’s Oil War Against Russia Is Losing Momentum

Tankers in waters off Spain’s Ceuta continue to carry crude from Russia to Asian markets despite Western sanctions.

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A new report showed that Russia’s oil revenues rebounded in March and April to their highest level since November, supporting the president’s vladimir putinfinancing ability The Kremlin’s onslaught on Ukraine.

Analysis released on Wednesday by the Center for Energy and Clean Air Research, an independent Finnish think tank, found that Russia’s oil export revenues have recovered from January and February levels.

The findings suggest that Moscow has recently been able to recoup revenues from fossil fuel exports despite an EU import ban and a wider G7 oil price cap imposed late last year.

Less than a week after G7 leaders explain At the end of the summit in Hiroshima, Japan, a price cap on Russian oil and petroleum products was in play, Russian revenues fell, and lower oil and gas prices benefited countries around the world.

Above all, April’s developments are a warning for the future unless action is taken.

Laurie Millivirta

Principal Analyst, Center for Energy and Clean Air Research

Energy analysts at CREA said the so-called price-cap coalition’s failure to revise price levels and enforce policies had caused the measures to “lose traction, integrity and credibility.”

“Russia’s export revenue fell sharply year-on-year in April, mainly due to the EU import ban and lower oil prices. This means that Russia’s budget is likely to remain in deficit, limiting military spending,” said Lauri Myllyvirta, chief analyst at CREA and co-authors of the report.

“However, for the first time, Russia was able to export its main crude oil at prices systematically higher than the price ceiling levels set by the US, EU and allies,” he added, saying it exposed “significant gaps” in enforcing the price ceiling policy .

“Unless the enforcement gap is urgently addressed, this risks breaking the price cap mechanism forever. This in turn would boost Russia’s expected tax revenues and make the invasion easier to sustain. So the April developments are, above all, unless Take action, or a warning of what will happen,” Myllyvirta said.

An EU spokesman declined to comment when contacted by CNBC.

Russia oil revenue recovery expected to continue

At the beginning of the year, the data show Russia’s fossil fuel export revenues fell sharply in December. That appeared to underscore the effectiveness of policymakers targeting Russia’s oil revenues and sparked calls for tougher measures to help Kiev win.

However, Russia’s oil tax revenue rose 6% month-on-month in April due to higher export revenue in March, according to the latest CREA findings.

To be sure, the Kremlin’s revenues are significantly lower than they were when oil prices soared last April.

According to the report, due to the increase in export revenue in March, Russia’s mining tax revenue in April rebounded by 5% month-on-month, and the increase in May is expected to be even greater.

This means that after bottoming out in early 2023, Russia’s oil tax revenues will pick up due to higher sales volumes.

Russian President Vladimir Putin meets Supreme Court Chairman Vyacheslav Lebedev at the Kremlin in Moscow, May 22, 2023.

Mikhail Klimentiev | AFP | Getty Images

“The Kremlin’s tax revenues are closely watching Russian crude prices, underscoring the importance of oil price caps. The country is also changing its tax regime to reduce the impact of price caps,” said Isaac Levi, energy analyst at CREA.

“Unless the Price Cap Coalition takes action to lower the price cap level and fill the enforcement gap, changes in Russia’s oil tax structure will force Russian crude prices closer to international benchmarks, leading to further recovery of Russian oil revenues and the wholesale failure of the price cap system,” he added .

Moscow’s export revenue from seaborne oil is estimated at 58 billion euros ($62.5 billion) since the European Union’s import ban and the G7 price cap on Russian oil, the CREA analysis said.

Most of it was transported on tankers insured or owned by Europe, it added. Russia’s revenues could be further cut by 22 billion euros if the crude oil price ceiling is lowered to $30 a barrel and the price ceiling for oil products is revised accordingly, CREA said.

What is the purpose of price caps?

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