Five sanction steps to deprive Russia of $40 billion in annual oil and gas revenues – KSE Institute

17 January 2023

KSE Institute experts in a recent study proposed five steps to increase pressure on the aggressor’s energy sector.  They  estimated that these measures – a mix of strengthening existing sanctions and new restrictions –  could deprive Russia of $40 billion of oil and gas revenues in 2023.  

First, the experts propose to cut the crude price cap for Russian oil from $60 to $50 per barrel from February 5, when the embargo on oil products comes into force. This will squeeze Russia’s revenues at little risk of an oil price hike, since Russia will have a strong inventive to keep supplying oil, given production costs estimated at $10-15 per barrel. In fact, the experts propose to lower the price cap further to $30/bbl in the coming months. 

Second, the experts propose to set the price caps for petroleum products (diesel, fuel oil, jet fuel) – which account for about 1/3 of Russia’s oil exports – on the basis of the lower crude price cap and the pre-invasion prices, which tend to be lower.  

Third, the experts propose to ban the import of Russian gas to the EU through pipelines controlled by the Russian Federation. This will completely block any attempts of the aggressor to restart the Yamal and Nord Stream gas pipelines, and will shut down the Turkstream pipeline – leaving sales through the Ukrainian GTS as Russia’s sole channel of pipeline gas sales to Europe.  This will increase Ukraine’s energy security and revenues, while squeezing Russia’s gas sales and nullifying Russia’s objective of selling gas to Europe without going through Ukraine.  

Fourth, the import of liquefied natural gas from Russia to the EU should be banned. The USA, UK, Canada, and Poland have already made this decision. 

Fifth, the experts propose to impose full sanctions against Gazprom, Gazprombank, and Russian oil companies. Minor exceptions to the restrictions may be made for financial transactions related to oil trade within the price cap. Up to now, the sanctions coalition has  been cautious because of the west’s dependence on Russian energy.  But now that dependence has been effectively eliminated, there is no reason not to impose broad sanctions on Russian oil and gas companies. Sanctions should affect all Russian oil and gas companies, both state-owned – “Gazprom,” “Rosneft,” “Gazpromneft,” “Zarubezhneft,” and private – “Surgutneftegaz” and “Lukoil.”

These will reduce Russia’s oil and gas revenues by about $40 billion in 2023, pushing Russian oil and gas export revenues to a level which has previously caused financial and currency crises in Russia. 

Last year, the Russian economy was resilient despite severe sanctions pressure, as record revenues from oil and gas sales helped to avoid a deep crisis. However, with falling energy prices, and a significant share of international reserves blocked, the aggressor’s economy is becoming fundamentally fragile. New sanctions bring closer the critical point beyond which Russia will not be able to continue the war.