Oil sanctions are empirically effective

The effects of the oil embargo and price cap are soon to be felt. How can Russia redirect the flow of its hydrocarbons towards new markets?

Sergei Guriev : Oil sanctions only started in December. These are extremely important sanctions: Europe pretty much stopped buying Russian oil in December and will stop buying Russian oil products in February. These sanctions seem to be well enforced. Russia will need to sell to other countries, and this is where the oil price cap matters.

Whatever Russia says, other countries that continue to buy Russian oil, such as India and China, will not want to pay above the oil price cap because they are afraid of secondary sanctions. They are also afraid of insurance sanctions because oil tankers with Russian oil with oil sold above the oil price cap will not be insured. It is also in the interest of India and China to pay less. So these sanctions will eventually undermine Russian budget revenues, and this is very effective. Sixty dollars per barrel, the current price cap is sufficiently high. It is already difficult for Russia to balance its budget at this level and the Russian budget will run a deficit this year, 2022, and next year, 2023, but what is more important, once the mechanism is in place and functions efficiently, the West can actually reduce the oil price cap, for example from 60 to 55 dollars, and that will further decrease Putin’s capacity to finance the war.