Russian oil revenues rebounded after the price cap, especially due to Pacific trade to China.

Russia’s oil revenues have rebounded in March–April from levels reached in January–February 2023, rising to the highest level since November, even as the G7 leaders stated at the conclusion of the Hiroshima Summit that the price cap is working. The latest analysis from the Centre for Research in Energy and Clean Air (CREA) shows that the price cap policy had a good start after it came into force in December 2022. However, it has since lost traction, integrity and credibility as the members of the Price Cap Coalition failed to revise price levels and enforce the policy.

Our key findings include:

Russia’s oil export revenue rebounded in March–April from levels reached in January–February 2023, rising to the highest level since November. Export earnings fell substantially in the first months since the EU’s crude oil import ban took effect in early December.

The rebound was driven by an increase in export prices, enabled by the failure of the U.S., EU and other price cap coalition countries to lower the level of the caps, contrary to the policy, and due to failures in enforcing the crude oil price cap.

Reported prices for Urals crude rose above the price cap in April, but European-owned and insured tankers continued to lift Russian oil, indicating that enforcement is not working. It has been apparent for months that enforcement of the price cap doesn’t work in the Pacific trade from Russia’s Far Eastern ports to China.

The price cap coalition holds every advantage, as Russia continues to rely on European-owned and insured tankers for most of its oil exports. The share of tankers covered by the price cap in crude oil shipments out of Russia stayed around 54% in April. For oil products & chemicals, the coverage of the price cap coalition is above 60% which shows the strong leverage the policy has if price levels are lowered and enforced properly to reduce Russia’s export earnings.

Russia has made an estimated EUR 58 bln in export revenue on seaborne oil since the EU import bans and the price caps entered into force, with the majority of this oil carried on European-insured or owned tankers. Russian revenues could have been slashed by EUR 22 bln (37%) by setting the price cap for crude oil at USD 30 per barrel and revising the caps for oil products accordingly.

Unless the price cap coalition takes action, changes to Russia’s oil taxation structure will force the price of Russian crude oil closer to international benchmarks, leading to further recovery of Russia’s oil revenue, which would damage the impact and credibility of the sanctions.