In December 2022, the European Union agreed to a plan to prohibit seaborne imports of Russian oil and establish a price cap of $60 per barrel. An article published by World Energy Weekly (March 6, 2023 issue), a publication of Petrostrategies, a French think-tank specializing in energy issues, asks whether Russia is still able to sell significant amounts of oil at prices that exceed Western caps.
Has Russia managed to massively circumvent the measures (sanctions and price caps on its oil sales) imposed by the West in response to the war in Ukraine? And if so, has it managed to earn significant oil revenue that isn’t “officially” visible? This question has been under debate for several weeks now. The fact that even credible sources in this area disagree with each other makes it all the more difficult to see clearly. In a note published on February 10, Goldman Sachs (GS) said that a growing number of Russia’s trading partners are buying its crude oil at a price higher than the publicly-quoted price. Even more problematic for the Western coalition is the fact that the gap between the quoted price and the average (real) purchase price has reportedly carried on rising, reaching $25/b at the end of 2022.
Goldman Sachs argues that “the resilience in production so far may partly reflect that the effective price paid for Russian oil appears significantly greater than the quoted price assessments”. It’s difficult to determine how far this reasoning corresponds to reality, if at all. Especially as Russia announced, just a few days after the note was published, that its oil production was to be cut by 500,000 b/d as from this month (March)…
Probably in response to Goldman Sachs, the US Department of the Treasury (through Ben Harris, its Assistant Secretary for Economic Policy) quickly challenged the US bank’s analyses: “To my knowledge, there is no hard data or conclusive evidence that supports speculation about Russia evading the sanctions by using Coalition service-providers and receiving above-the-cap payments”, said Harris. But his assertions didn’t clarify the situation at all, as Ben Harris chose his words particularly carefully, and didn’t completely discredit the idea that Western measures to counter Moscow’s oil exports have failed, at least partly.
The Biden administration is well aware that there are some data – but certainly no “conclusive evidence” – to support the assumption that Moscow is evading the cap on the selling price of its crude oil. In mid-February, Platts noted that traders were raking in unusually high profit margins on cargoes of Russian “Urals” crude shipped to India from Baltic Sea ports. According to the British information provider, the price of these deliveries is $20 higher than “official” purchase prices.
More recently, a group of academics working for particularly reputable institutions (Columbia University, University of California and the Institute of International Finance) claimed that Russia had made far more money than initially envisaged, at least by the end of 2022. According to these economists (Tania Babina, Benjamin Hilgenstock, Oleg Itskhoki, Maxim Mironov and Elina Ribakova),
Moscow managed to sell its oil at an average price of $74/b over the four weeks following the imposition of the price cap by the G7 and the EU (effective since December 5, 2022). “Our surprising finding [is that] a significant share of Russian crude oil [is] being sold well above the price cap level of $60 a barrel” imposed by the West. To arrive at this price estimate, the researchers relied on customs data published by buyers of Russian oil, as well as figures from ports and pipeline operators. Obviously, the team of academics couldn’t correlate these data with figures from Russia, which doesn’t publish statistics comparable to those mentioned above.
Let’s not forget that the price cap imposed by Western countries only targets Russian oil exports involving companies based in the EU or in a G7 member-state. So, in principle, Russia can perfectly well sell oil abroad by working with non-Western entities alone. In practice, it’s generally accepted that it’s difficult to do without “Western” services completely in the vast majority of transactions, especially in such areas as shipping and insurance. In other words, it seems difficult to ascribe Russia’s (probable) performance to a huge “zero-West” oil-export strategy.
Be that as it may, Moscow and Washington aren’t making this issue any clearer, and no real developments are to be expected. Of course, the two capitals have an interest in maintaining this vagueness rather than revealing their real positions and the data they have at their disposal. The same could be said of certain financial institutions. For obvious reasons relating to potential gains linked to prices on the oil market, these companies aren’t necessarily motivated to deliver very precise analyses or projections. They can simply present trends without taking too many risks.