Russian oil price caps have crushed Moscow's war revenue to start the year - despite widespread violations

• The Kyiv School of Economics found that the West's price caps have hit Russia's oil export revenue.
• That's despite widespread violations by Western shipping companies.
• Researchers said the sanctions have been ultimately effective but further enforcement is necessary.

A new study from the Kyiv School of Economics found that the West's price caps on Russian oil have been effective overall despite widespread violations.

Russian oil continues to flow on the global market, and Moscow's export revenues from oil and oil products dropped by $15.6 billion, or 29%, in the first quarter of 2023 compared to the prior quarter, KSE said.

In December, the G-7 and EU imposed a price cap of $60 a barrel on Russian crude, and in February they imposed additional price caps on a range of refined Russian fuels.

That means companies in the G-7 and EU must abide by the price caps to provide any shipping, insurance or related services for Russian exports anywhere in the world.

But according to KSE's study, 95% of the oil sold out of Russia's Pacific port of Kozmino sold above the price cap, with companies from G-7 nations facilitating over half the shipments. 

"The fact that a substantial share of voyages from Kozmino involves Western-owned and/or -insured vessels while essentially all transactions show prices above $60/barrel points to potentially considerable price cap violations," the researchers said.

The UAE, Hong Kong, and Singapore were among the top buyers of crude above $60 a barrel in the first quarter, they noted.

KSE concluded that stiffer enforcement of existing sanctions are necessary. That could take the form of risk-based audits for price-cap compliance, ramping up countries' alignments of sanction efforts, and increasing transparency for transactions that don't involve Western services.

To be sure, moderating global oil prices over recent months also contributed to lower export prices for Russia. With OPEC+'s decision to cut production by 1.15 million barrels a day, though, prices have started to tick higher and that can lead to more income for Moscow.

"For each $1/barrel increase in the price of crude oil, the country could receive $2.7 billion in additional export earnings," the researchers said.

In their view, that means price caps should be lowered further to ensure a "continued weakening" of Russian export earnings.  

The market for Russian crude has been fundamentally transformed since Vladimir Putin ordered the invasion of Ukraine. European nations — previously Russia's biggest buyers —  have been almost entirely replaced by China and India, as the latter two accounted for about 75% of total Russian crude exports over the first three months of the year.