KSE Institute’s latest study, “Sanctions on Russian Oil Need to be Strengthened” highlights that, despite existing measures, Russia continues to earn around $425 million per day from oil exports. Moreover, there is compelling evidence that the Kremlin has found ways to circumvent and violate the sanctions regime. These findings underscore an urgent need to strengthen restrictions targeting Russian oil.

The report shows how current sanctions have impacted Russian export earnings and budget revenues from oil, but also raises concerns about the key channel through which this was achieved: the discount on Russian oil vs. global prices. In recent months, it has fallen from close to $25/barrel to less than $19/barrel. And this is of critical importance: for every $10/barrel increase, Russia generates additional annual export earnings of $18.3 billion from crude oil and $10.5 billion from oil products.

We find that the G7/EU oil price cap, a key element of the sanctions regime, is being violated to a significant extent. At the critical Pacific Ocean port of Kozmino, 97% of crude oil exports were sold above the $60/barrel limit in H1 2023, while G7/EU companies participated in 42% of all exports. The report outlines that violations may have occurred for up to 59 million barrels – 16% of all crude oil exports subject to the price cap in this period. These findings underscore the need for stepped-up enforcement.

The research also highlights potential sanction evasion through third-party intermediaries indirectly benefiting Russian entities. Notably, the spread between prices of Russian crude oil exports to India and those of Indian imports from Russia suggest that transportation costs are being inflated. The value of the spread was $7.0 billion in January-May 2023 – money that could have become accessible to Russian companies.

Despite current sanctions, still-substantial export earnings from oil contribute to overall macroeconomic stability in Russia and support military spending. To increase pressure, we recommend a more aggressive stance and urge Ukraine’s allies to explore and implement strategies to effectively strip Russia of financial resources.

KSE Institute recommends lowering the price caps for crude oil and oil products by at least $15/barrel. Broader measures could include reinstating the original ban on EU companies’ participation in Russian oil trade, applying the embargo to oil products refined in third countries from Russian crude oil, imposing taxes on imports of Russian oil instead of the price cap, and establishing an escrow account for Russian oil export earnings.