Column by Tatyana Yedovina on the unintended consequences of restrictions on Russian oil exports

If at the beginning of the year analysts made cautious assessments of how effective the price ceiling for Russian oil supplies turned out to be (recall, it was approved by the G7 countries and the EU along with the European embargo on the purchase of oil from the Russian Federation last December at $60 per barrel) , now the significance of this measure fades into the background. Market participants are once again concerned about its broader conjuncture.

The purpose of the ceiling was to limit export earnings while maintaining the supply of Russian oil to the market, it was assumed that this would be achieved by narrowing the possibilities for transporting and insuring supplies. Russian oil prices have indeed fallen, however, as recorded by the Peterson Institute for International Economics (PIIE), the European oil embargo turned out to be a more important factor. The effect of the ceiling was “limited at best”. Problems not only with the possibility of bypassing the price limit, but also with the specifics of supplies. Exports from the ports of the Baltic and the Black Sea, when reoriented to Asian markets, have fallen sharply in price, deliveries via the East Siberia-Pacific Ocean oil pipeline, which were previously sent to Asia, do not depend on European buyers. At the same time, companies from the G7 countries are seen in a significant share of such exports, PIIE notes.

The only thing the ceiling did well (compared to the tougher options for sanctions) was to keep Russian oil on the market. Formally, the average cost of Russian export supplies (those for which such data is available) has already exceeded the ceiling level – according to the International Energy Agency, back in June, the average cost of Russian oil was $55.62 per barrel (with an average Brent price of $74.8 per barrel). ), while since April the average discount to Brent has decreased from $24.4 per barrel to $19.2 per barrel (for Urals, this effect was more pronounced than for ESPO, which also indirectly confirms the conclusion about the lower impact of the ceiling). In July, this difference, judging by the data of Russian departments, became even smaller – but Russian oil trading has not been distinguished by transparency over the past six months.

Strengthening control over the implementation of sanctions, in turn, may be hindered by a change in the balance in the market: oil prices are rising again due to expectations of a shortage against the backdrop of a reduction in production in Saudi Arabia and a decrease in Russian exports (to support prices, on April 2, Russia announced a reduction in production by 500 thousand barrels per day). Brent is already above $84 per barrel. Market pricing is likely to depend on how weaker global demand and OPEC+ production cuts balance out. Under such conditions, any measures to tighten sanctions on Russian supplies can only increase pressure on prices.