What are the expectations? Will sanctions on Russian exports of Energy commodities alone determine Russia's future revenue on exports of Crude oil?
Since December 2022, we have heard the word “sanctions” in relation to the Russia-Ukraine war. The main inactive punitive measure against Russia are price caps on different exported energy Materials from Russia into EU countries and member countries of G7. But which organization sets these restrictions on Russian oil imports into particular countries? What are the type of sanctions imposed onto Russian energy commodities? How has these sanctions affected trades and exports of Russian Oil into countries without sanctions against Russia, and what are the goals desired to be met by setting these sanctions?
The organization
The organization behind the sanctions imposed onto Russia is “The group of Seven”, known as “G7”. G7 is an economic forum that aims to coordinate global policy. G7 consist of seven member countries: United Kingdom, United States, Canada, Germany, France, Italy and Japan. The EU is also a member of the G7, however, they do not have the rights to host a summit. Russia was a member until suspension in 2014.
What are the type of sanctions imposed onto Russia?
The Price Cap Coaliation was introduced in December 2022, comprising of G7, the EU and Australia. Two objectives are defined by the Price Cap Coaliation: 1) To set constraints on the revenues gained by Russia, through exports, to further fund the war against Ukraine and 2) to monitor and secure security over the global oil market.
The Price Cap Coaliation is driven by compliance and enforcement to make stakeholders in the industry, trading with Russian oil and other energy products, to comply to the Price Cap Coaliation and restrict transportation of Russian Oil.
Three key price caps restricts the trade and different types of Oil exported from Russia. Russian Seaborne Crude Oil, Petroleum products such as diesel, kerosene and gasoline (also known as “Premium to Crude” petroleum products), and other Petroleum products such as fuel oil and naphtha (also known as “Discount to crude” petroleum products).
The three different price caps on exports are connected respectively to the three different types of Russian oil mentioned: A price cap on fixed maximum price of $60 per barrel, $100 per barrel, and $45 per barrel respectively.
How has these sanctions affected trades and exports of Russian Oil into countries without sanctions against Russia?
A complete ban on imports into the EU and UK have been enforced in 2023 by the Price Cap Coaliation. The price cap coaliation has also set an import ban on LPG (Liquified Petroleum gas). From the aim of restricting trade between Russia and other stakeholders monitored by G7 and EU, the rise of “shadow trade” has become more pronounced. These are ships that transport sanctioned Russian Oil and other commodities in disguise.
Below is a graph from “Center for research on Energy and Clean Air” illustrating the level of imports of different energy commodities from Russia after imposed Sanctions in December 2022.
According to CREA, the largest amount of fossil fuel exported from Russia, almost 59%, has been imported by China and India. An estimated €36 billion of revenue has been gained by Russian export of Fossil fuel outside the Price Cap Coalition in October-November 2023.
Goals by the Price Cap Coalition after sanctions
Before the sanctions in 2022, it was recorded in 2021 that Russia exported almost half of its total oil exports to the EU. As an aftermath of price cap and import bans of Russian oil into the EU, approximately €71 billion of oil imported to the EU has become a loss of revenue for Russia.
The goals forward to restrict Russian Energy commodities to be exported, leading to lower revenues and less financing to Russian governance, is incentived by using the Price Cap as the main tool to strenghten compliance among stakeholders. According to the “Center for Research on Energy and Clean Air”, there is the potential to reduce the Price cap to a lower price per barrel of Russian Oil and to identify further loopholes utilized by the Russian Oil industry such as as “Shadow trade”.
There is a limit to how the sanctions and compliance contribute to restricting the Russia's revenues on their Energy commodities. The future holds many unforeseen changes and events that may have a big impact on Russia's revenues on their oil exports. The activities concerning Shadow trade may be further addressed to realize its impact onto global trade and relations to the sanctions imposed on Russian exports, supply and demand effects from the importing countries that do not hold sanctions on Russian exports, and how the conflict between Russia and Ukraine may evolve - are some major factors to take into consideration when determining the development on Russia's revenues coming from their exportation of oil and other energy commodities.
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