KSE Institute released its November Russia Chartbook, “Widespread Price Cap Violations Do Not Leave Room For Error – Action to Improve Enforcement is Needed”, providing an overview of Russia’s energy sector, foreign trade, and budget situation. It emphasizes that macroeconomic pressure on Russia is subsiding, and Russia’s economy bounced back from the initial shock from the war and sanctions. Bold action is urgently needed to maintain pressure on Russia.

Russia’s crude oil exports are increasingly slipping beyond the G7’s reach. In October 2023, the oil price cap appears to have been violated systematically, likely due to so-called “attestation fraud”, e.g., the provision of falsified pricing information to G7/EU service providers. 

Furthermore, Russia’s reliance on its “shadow fleet” of vessels not owned and / or insured by G7 / EU entities is rising, meaning the cap’s leverage is fading quickly. All this calls into question the effectiveness and credibility of the energy sanctions. 

At the same time as oil export earnings and budget revenues are increasing, Russia is collecting more non-O&G revenues, which also indicates a weakening of macroeconomic pressure on Russia. As a result, the current account surplus is increasing, and the deficit budget is decreasing, allowing the Kremlin to plan to increase military spending in 2024. Increased foreign currency inflows in combination with higher interest rates by the CBR, and the re-introduction of capital controls have also helped to stabilize the ruble.

The October 2023 data suggest that problems with oil price cap implementation and enforcement are much bigger than previously expected. We propose three concrete steps that can quickly and effectively address these challenges:

1. G7 and EU authorities should ensure that authorities have sufficient information to determine if the price cap is complied with; 
2. EU coastal states should leverage geographical “choke points” to limit Russia’s ability to use a shadow fleet of tankers;
3. Price cap coalition countries should step up penalties on entities that violate the price cap or facilitate such violations.