Russia’s April oil revenue up, exposing shortcomings in oil price cap

Russia’s oil revenue has rebounded in the March-April period of this year from levels seen in January-February, rising to the peak since November 2022 and exposing the failure of price caps, according to an analysis from the Centre for Research in Energy and Clean Air (CREA) on Wednesday.

The price cap policy of $60 per barrel of Russian oil had a good start after it went into effect in December 2022, according to CREA, but it has lost ‘traction, integrity, and credibility’ as members of the Price Cap Coalition failed to revise price levels and enforce the policy.

‘The EU has failed in its commitment to review the price cap every two months to ensure that it stays lower than the average market price,’ said CREA’s lead analyst and co-author of the report, Lauri Myllyvirta.

According to the analysis, even as the price of Urals crude oil rose above the price cap in April, European-owned and insured tankers continued to transport Russian oil.

‘This is a clear indication that the enforcement is not working,’ Myllyvirta said.

Russia’s oil revenues increased by 14% in April and oil tax revenue also rose by 6% month-on-month in April. However, revenues remained significantly below April 2022 levels when oil prices spiked.

According to CREAʼs Energy Analyst Isaac Levi, ‘the Kremlin’s tax revenue has closely followed prices for Russian crude oil, highlighting the importance of the oil price cap. The state is also changing its tax regime to diminish the impact of the price cap.’

‘Without proactive measures to continuously revise price caps and plug enforcement gaps, we can expect Russia to successfully claw back its revenues,’ Levi said.

He added that, ‘unless the price cap coalition takes action to lower the price cap level and plug the enforcement gaps, 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 and wholesale failure of the price cap system.’

Russia has earned an estimated €58 billion in export revenue from seaborne oil since the imposition of EU import bans and price caps.

CREA’s analysis shows that Russia’s revenue could be slashed by €22 billion, or by 37%, if the price cap for crude oil is lowered to $30 per barrel and price caps for oil products are revised accordingly.

CREA called for banning tankers that violate price caps from entering EU and G7 ports and territorial waters. It also advocated for payments to be processed only through authorized intermediaries and to ensure that sales contract attestations are done only by pre-approved trading and financial entities to reduce fraudulent documentation.

CREA urged for a reduction in the oil price cap to a level closer to Russia’s production costs, which are estimated to be around $15 per barrel.

• Centre for Research in Energy and Clean Air (CREA)