European countries have been scrambling to find alternative sources of oil and gas following Russia’s full-scale invasion of Ukraine in February 2021.
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Russia’s fossil fuel export revenues collapsed in December, according to a new report, significantly hampering President Vladimir Putin̵[ads1]7;s ability to finance the war in Ukraine.
The findings, Ukrainian officials and campaigners say, illustrate the effectiveness of targeting Russia’s oil revenues and underscore the urgent need for Western policymakers to increase economic pressure on Moscow to help Kyiv win.
Published Wednesday by the Center for Research on Energy and Clean Air, an independent Finnish think tank, the report found that the first month of the EU’s ban on seaborne imports of Russian crude and the G-7’s price cap had cost Moscow an estimated 160 million euros ($171.8 million ) per day.
CREA’s report said the Western measures were largely responsible for a 17% drop in Russia’s fossil fuel export earnings in the last month of 2022. That means Russia – one of the world’s top oil producers and exporters – saw its earnings from fossil fuel exports declined. to its lowest level since Putin launched his full-scale invasion of Ukraine in late February.
“The EU oil ban and oil price cap have finally started and the impact is as significant as expected,” Lauri Myllyvirta, principal analyst at CREA, said in a statement.
“This shows that we have the tools to help Ukraine prevail against Russia’s aggression. It is important to lower the price ceiling to a level that denies the Kremlin taxable oil profits, and to limit the remaining oil and gas imports from Russia,” Myllyvirta said. .
The G-7, Australia and the EU implemented a $60 per barrel price cap on Russian oil on 5 December. It came together with a move by the EU and the UK to introduce a ban on seaborne imports of Russian crude oil.
Taken together, the measures reflected by far the most important step in curbing the fossil fuel export earnings that fund the Kremlin’s offensive in Ukraine.
Russian President Vladimir Putin attends a meeting at the Kremlin in Moscow on January 6, 2022.
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Energy analysts had been skeptical of the impact of a price cap on Russian oil, particularly as Moscow had been able to divert much of its European seaborne shipments to the likes of China, India and Turkey.
Russia retaliated against the Western measures late last month by banning oil sales to countries that comply with the price ceiling.
Kremlin spokesman Dmitry Peskov has previously said a Western price cap on Russian oil would not affect its ability to maintain what it describes as its “special military operation” in Ukraine. Peskov also warned that the measure would destabilize global energy markets, Reuters reported.
“Financial Bloodline of Putin’s War”
Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskyy, said on Wednesday that while it was “very good news” that Russia was losing revenue from fossil fuel exports as a result of the Western measures, it was “definitely not enough”.
Ustenko echoed Zelenskyy’s call for a price cap set at a much lower level, saying at a briefing that any escalation of economic sanctions against the Kremlin should see the oil price cap come down to a target range of $20 to $30 a barrel.
There is “no need to wait and see,” Ustenko said. – It is already clear.
CREA’s report found that the measures caused a drop in shipment volumes and prices of Russian oil that have cut the country’s export earnings by 180 million euros per day.
By increasing exports of refined oil products to the EU and the rest of the world, the report said Moscow had been able to reclaim 20 million euros per day, resulting in a net daily loss of 160 million euros since the Western measures took effect Power .
Russia still earns an estimated 640 million euros per day from exporting fossil fuels, the report says.
“The first month of the embargo proves what we have been saying since the beginning of the invasion: revenues from fossil fuel exports are the economic lifeblood of Putin’s war,” said Svitlana Romanko, founder and director of the Ukrainian human rights group Razom We Stå (Together We Stand). .
“The EU and the G7 have the power and all the means to cut this bloodline,” she added. “Only power and money speak to the Kremlin.”
Romanko called on the price ceiling coalition to lower the price ceiling, strengthen enforcement of the embargo and introduce additional sanctions to close loopholes.
CREA’s report says that lowering the oil price ceiling against Russia to between $25 and $30 a barrel, a range that remains “well above” production and transportation costs, would reduce Russia’s oil export earnings by at least 100 million euros per day.
It says the Western price cap coalition boasts “strong leverage” to push down the price caps, adding that “Russia has not found a meaningful alternative to vessels owned and/or insured in the G7 for the transport of Russian crude oil and oil products from the Baltic and Black Sea ports.”