The price cap on Russian oil is costing the Kremlin €160 million ($172 million) a day, as the West tries to hobble Moscow’s war machine, a Finnish researcher said.
Lost revenues will rise to $280 million a day when the cap is extended to refined products from Feb. 5, the Helsinki-based Centre for Research on Energy and Clean Air said in a report. The research provides further evidence of how the cap imposed by Group of Seven nations — and associated European Union sanctions — are hitting Moscow. Russia’s flagship crude is already selling at less than half international prices.
“The EU’s oil ban and the oil price cap have finally kicked in and the impact is as significant as expected,” said Lauri Myllyvirta, lead analyst at CREA.
The Kremlin is skeptical about CREA’s calculations, Interfax reported, citing President Vladimir Putin’s spokesman Dmitry Peskov. It’s too early to estimate the impact as the global energy market is too volatile and Russian oil exporters have yet to deal with clients observing the price cap, according to Peskov.
India, China and Turkey — key buyers of Russian crude — have not joined the western price cap. Putin’s decree, published last month and in force from February, bars supplying crude and fuels to foreign buyers that adhere to the threshold in their contracts.
The research organization said the EU should look to tighten the screws further on Moscow. Cutting the cap further to $25 to $35 per barrel, from $60, would still be above Russian production and transport costs but would slash the country’s oil export revenue by at least another €100 million per day, according to CREA.
“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.
While the discount on Russian oil may be ballooning, there is always a possibility that the nation could make arbitrary supply cuts — something the Kremlin has threatened — that boost wider oil prices. Russia is looking at ways to counter the price cap, which Putin says is “illegal.”
The widening discount on the country’s Urals grade follows the EU ban from Dec. 5 on almost all seaborne crude imports from Russia. Simultaneously, the bloc joined with the G-7 in imposing a cap on the price of Russian supply. Anyone wishing access to western services — such as industry standard insurance — can only do so if they pay $60 or less.
Russia has so far shipped €3.1 billion of crude on vessels covered by the price cap, the bulk of which is taxed by the government, CREA said. Other measures put in place alongside a cut of the price cap, such as strengthening penalties for non compliance and additional sanctions on sales of tankers, could cut fossil fuel revenues by a further €200 million per day, it said.
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