Oil revenues now account for 23 percent of the total Russian budget, compared to 30-35 percent before the war in Ukraine.
The US Treasury Department has released a progress report saying that the price cap on Russian oil has been successful in achieving its dual goals: reducing Russia’s revenue and keeping the global energy market stable.
The report comes nearly one year after leaders of the G7 countries endorsed the price cap at the G7 Summit in Germany, and nearly six months after the cap was implemented, barring companies from providing insurance and maritime services for the transport of Russian oil unless it is sold under USD 60 per barrel. A second phase of the price cap implemented in February was applied to refined petroleum products from Russia.
The report says Russian oil revenues – the country’s single-most important source of federal revenue – from January to March 2023 were over 40 percent lower than a year prior. Before the war in Ukraine, oil revenues constituted 30–35 percent of the total Russian budget. In 2023, oil revenues have fallen to just 23 percent of the Russian budget.
This decline in revenue has occurred despite Russia’s exporting roughly 5 to 10 percent more crude oil in April 2023 compared to March 2022, the report says. “In response to the price cap, Russia has been forced to alter the way it taxes oil such that it institutionalizes the discounted value of Russian crude—essentially writing into law the steep discount the price cap has helped cement.”
The report says this new taxation has the potential to threaten Russia’s future oil production capacity by reducing the incentive for companies to invest in equipment, exploration, and existing fields.
Treasury notes that there was widespread initial market skepticism around the price cap, but that market participants and geopolitical analysts have now acknowledged that it is accomplishing both of its goals.
The New York Times separately reports that Russia is spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, which shifts money away from military spending.
Some analysts say the price cap has not been as effective as the Treasury is claiming. Some have noted the large “shadow fleet” of illegal tankers that allow Russia to ship oil outside the cap, as well as ship-to-ship transfers conducted in ports in the Mediterranean.
Others have cited a potential loophole in sanctions that allows third countries, such as India, to purchase high volumes of discounted Russian crude, refine it, and then sell it back to European buyers at a high price.