But Russia is still taking in €640 million a day from the sale of fossil fuels
No one can deny that the price cap and the European Union embargo on Russian oil have cut into Moscow’s revenue. But are those sufficient to cripple the Russian financial capacity to continue its war on Ukraine?
According to AP, quoting the Helsinki-based Centre for Research on Energy and Clean Air (CREA), the combination of the cap by the Group of Seven and the EU ban is costing Russia an estimated €160 million (US$171.9 million) per day. The report was based on a study of the impacts of the sanctions on Russia after the first few weeks of their imposition. The sanctions took effect on Dec. 5.
But the report also indicated that Russia was still taking in €640 million a day from fossil fuels, down from €1 billion daily from March to May 2022 just after the country invaded Ukraine on Feb. 24. That doesn’t seem crippling to the Russian war kitty.
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The report, however, underlined that Russia’s lost revenues will rise to $280 million a day when the cap is extended to refined products on Feb. 5. That would take Moscow’s earnings to €520 million a day. The report added that Russia still managed to make €3.1 billion in revenue, shipping oil under the price cap, reaping €2 billion in tax income.
“The EU’s oil ban and the oil price cap have finally kicked in and the impact is as significant as expected,” Bloomberg said, quoting Lauri Myllyvirta, the lead analyst at the Centre for Research on Energy and Clean Air (CREA).
But the EU needs to tighten the screws on Moscow further, the report underlined. The $60 cap may not be enough. Cutting the cap to $25 to $35 per barrel from the current $60 would still be above Russian production and transport costs. Yet, the report added, that would slash the country’s oil export revenue by at least another €100 million per day. Lowering the cap to that level would almost completely eliminate the tax income by putting the price much closer to Russia’s cost of production, the report emphasized.
“It’s essential to lower the price cap to a level that denies taxable oil profits to the Kremlin, and to restrict the remaining oil and gas imports from Russia,” Myllyvirta said.
Moscow, however, remains skeptical of those calculations.
It is too early to estimate the impact of the sanctions, it maintains, as the global energy markets are too volatile. Russian oil exporters are yet to deal with clients observing the price cap, Interfax reported, citing Vladimir Putin spokesman Dmitry Peskov. Putin’s decree released last month and designed to be in force from February bars supplying crude and fuels to all foreign buyers that adhere to the (price cap) threshold in their contracts.
Buyers of Russian crude have their reasons for not wanting to ditch Moscow. China, the world’s top crude importer and the largest buyer of Russian crude, continues to disregard the Western sanctions. India and Turkey are also key buyers of Russian crude and continue to ignore the western price cap and import large volumes of Russian crude at discounted prices. Other countries also seem ready to join the club. In fact, a Russian delegation is expected in Islamabad later this week to discuss sales of discounted crude sales to Pakistan, which could lead, over the next few months, to vessels carrying Russian oil anchoring at Karachi Port.
Additional efforts by the West to push through with a still lower price cap on Russian crude may destabilize global oil markets further, some argue.
Russia is already looking at ways to counter the Western price cap, which Putin says is “illegal.” While the discount on Russian oil may be ballooning, there is always a possibility that Putin could make arbitrary supply cuts – something the Kremlin has threatened – causing oil prices to spike.
The U.S. and its allies in this campaign against Moscow cannot afford any instability in the global crude markets at this stage. Tightening the screws further does not suit their dual, yet conflicting, objective of maintaining the flow of Russian crude to the global markets while keeping Moscow’s earnings from crude sales in check. This is not an easy balance to make. If the price cap is lowered further, the possibility of Russia squeezing its crude taps remains.
Can the energy-thirsty world afford that? The answer remains a big no.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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