How did Russia save its oil exports from US and European sanctions?

The EU’s economic sanctions against Russia have essentially failed. Not so much, and not just because they are weak in themselves, but because their execution is weak. In fact, in the almost complete absence of an effective control system, those who violate the rules are not punished.

This was revealed by a study by Crea (English acronym for Center for Research on Energy and Clean Air), a Finnish think tank that monitors the latest status of the Western sanctions regime against Moscow. Ukraine dated February 24, 2022. Exactly one year ago, on December 5, the $60 per barrel ceiling for Russian crude oil was (so-called) ceiling price), in an attempt to limit the Kremlin’s ability to fuel its war machine.

Results below expectations

However, according to Crea data, the real effects of the sanctions imposed by the G7 countries and the EU (plus Australia) were much lower than expected. The Federation’s export earnings fell by 14% in one year; This is equivalent to a loss of revenue estimated at around 34 billion euros. The Finnish research center observes that the impact of sanctions is greatest in the first quarter of 2023, when Russia peaks with losses of 180 million euros per day. For example, in January, revenues from fossil fuels fell by 45% compared to the previous month (compared to a 25% drop in crude oil).

However, the report highlights how, since the middle of the current year, this impact has been effectively negated by what it describes as a “failure to consistently apply, enforce and monitor the price cap”. Daily losses increased from 180 million to 50 million in the second and third quarters, which later rose to 90 million. Gaps in the monitoring system mean sanctions can be circumvented with impunity, effectively allowing Moscow to continue selling its crude at prices above $60 a barrel. Of course, we remember that Russia continues to sell oil to many countries that do not comply with Western sanctions, including the price ceiling, and the volume of this trade is growing, while at the same time those with the West are decreasing.

“Purification gap”

With this statement, Crea points to real “gaps” in the regulatory system; These loopholes allow countries that maintain sanctions to still fully legally import petroleum products derived from Russian crude. And not just from third countries like India (which increased its purchases of low-cost crude oil from Moscow by 134% in 2023, which it then processes and sells to EU members) or like Azerbaijan (which is worth a similar discussion for this, but related) to Europe via Italy reaching natural gas). The rules are also violated by European states themselves: this is the case of Bulgaria, where the Neftochim Burgas refinery, owned by the Russian oil giant Lukoil, broke the ban on imports of Russian crude oil decided by Brussels by purchasing it. At a price of more than 1.1 billion euros.

There is also another loophole that the Kremlin has embraced: the so-called “ghost fleets” loophole. These are Russian tankers that were purchased by other countries but continue to transport hydrocarbons on behalf of the Federation. But there is something else that is almost incredible. In October 2023 alone, 48% of crude oil shipments in Russia were by tankers owned or insured by G7 and EU member states.

Crea concludes that this means that the right tools are already in the hands of Western countries to more effectively and strictly enforce the sanctions regime imposed on Moscow. What is clearly missing is the political will to implement these. Oleg Ustenko, economic advisor to Ukrainian President Volodymyr Zelensky, is of the same opinion: “The oil price cap is very well designed, but the weakest part has always been implementation,” he said, according to Politic.

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