European countries scrambled to find alternative sources of oil and gas after Russia’s large-scale invasion of Ukraine in February 2021.
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Russia’s revenues from fossil fuel exports collapsed in December, according to a new report, significantly hampering President Vladimir Putin’s ability to finance the war in Ukraine.
The results, according to Ukrainian officials and activists, illustrate the effectiveness of targeting Russia’s oil revenue and underscore the urgent need for Western policymakers to increase financial pressure on Moscow to help Kyiv prevail.
Released on Wednesday by the Center for Energy and Clean Air Research, an independent Finnish think tank, the report found that the first month of the European Union’s ban on maritime imports of Russian crude and the cap G-7 awards had cost Moscow about $160 million. euros ($171.8 million) per day.
The CREA report said Western measures were largely responsible for Russia’s 17% drop in fossil fuel export revenue in the last month of 2022. This means that Russia – one of the world’s leading oil producers and exporters – has seen its revenues from fossil fuel exports plummet. at their lowest level since Putin launched his full-scale invasion of Ukraine in late February.
“The EU-imposed oil ban and oil price cap has finally come into effect and the impact is as big as expected,” Lauri Myllyvirta, senior analyst at CREA, said in a statement.
“It shows that we have the tools to help Ukraine defeat Russian aggression. It is essential to lower the price ceiling to a level that deprives the Kremlin of taxable oil profits and to restrict the remaining imports of oil and of gas from Russia,” Myllyvirta said. .
The G-7, Australia and the EU implemented a price cap of $60 a barrel on Russian oil on December 5. This was accompanied by a decision by the EU and the UK to impose a ban on maritime imports of Russian crude oil.
Together, the measures reflected by far the most significant step in reducing the fossil fuel export revenues that fund the Kremlin assault on Ukraine.
Russian President Vladimir Putin attends a meeting at the Kremlin in Moscow on January 6, 2022.
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Energy analysts were skeptical about the impact of a price cap on Russian oil, especially since Moscow had been able to reroute much of its European sea shipments to countries like China, India. India and Turkey.
Russia retaliated to Western measures late last month by banning oil sales to countries that meet the price cap.
Kremlin spokesman Dmitry Peskov has previously said a Western cap on Russian oil prices 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 Line for Putin’s War”
Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskyy, said on Wednesday that while it is “very good news” that Russia is losing revenue from fossil fuel exports as a result of Western measures, they were “not certainly not sufficient”.
Ustenko echoed Zelenskyy’s calls for a price cap set at a much lower level, telling a briefing that every escalation in economic sanctions against the Kremlin should see the oil price cap fall into a target range of $20 to $30 a barrel.
There’s “no reason to wait and see,” Ustenko said. “It’s already clear.”
The CREA report found that the measures caused a drop in Russian oil shipment volumes and prices, which reduced the country’s export earnings by 180 million euros per day.
By increasing exports of refined petroleum products to the EU and the rest of the world, the report says Moscow was able to recoup 20 million euros a day, resulting in a net daily loss of 160 million euros since entering into force of Western measures. .
Russia still earns about 640 million euros a day from the export of fossil fuels, according to the report.
“The first month of the embargo proves what we have been saying since the start of the invasion: fossil fuel export revenues are the financial lifeblood of Putin’s war,” said Svitlana Romanko, founder and director of the Ukrainian group. human rights organization Razom We. Stand (Together we stand).
“The EU and the G7 have the power and all the means to cut this bloodline,” she added. “Only strength and money speak to the Kremlin.”
Romanko called on the price cap coalition to lower the price limit, strengthen the enforcement of the embargo and introduce additional sanctions to close loopholes.
CREA report says lowering oil price cap against Russia to between $25 and $30 a barrel, a range it says is still “far above” production and transportation costs, would reduce revenue oil export from Russia of at least 100 million euros per day.
He says the Western price cap coalition has “strong leverage” to drive down 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 petroleum products from Baltic and Black Sea ports.”